-----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, O/QDE5hwSfDclEBQFdY9YyZ4ShXHUAfzMNQZp1BpuSV9o+jOBqYlF9eJ5gPjtjef Kk3ttdbwE/uPLobPArqI3g== 0000950137-05-004287.txt : 20050411 0000950137-05-004287.hdr.sgml : 20050411 20050411110910 ACCESSION NUMBER: 0000950137-05-004287 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050131 FILED AS OF DATE: 20050411 DATE AS OF CHANGE: 20050411 EFFECTIVENESS DATE: 20050411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEXICO EQUITY & INCOME FUND INC CENTRAL INDEX KEY: 0000863900 IRS NUMBER: 133576061 STATE OF INCORPORATION: MD FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06111 FILM NUMBER: 05743216 BUSINESS ADDRESS: STREET 1: U.S. BANCORP FUND SERVICES, LLC STREET 2: 615 EAST MICHIGAN STREET, LC-2 CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147655307 MAIL ADDRESS: STREET 1: U.S. BANCORP FUND SERVICES, LLC STREET 2: 615 EAST MICHIGAN STREET, LC-2 CITY: MILWAUKEE STATE: WI ZIP: 53202 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-CSRS 1 c93331nvcsrs.txt SEMI ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06111 THE MEXICO EQUITY AND INCOME FUND, INC. (Exact name of registrant as specified in charter) 615 E. MICHIGAN STREET MILWAUKEE, WI 53202 (Address of principal executive offices) (Zip code) MR. GERALD HELLERMAN C/O US BANCORP FUND SERVICES, LLC 615 E. MICHIGAN STREET MILWAUKEE, WI 53202 (Name and address of agent for service) (866) 700-6104 Registrant's telephone number, including area code Date of fiscal year end: JULY 31, 2005 Date of reporting period: JANUARY 31, 2005 ITEM 1. REPORT TO STOCKHOLDERS. The Mexico Equity and Income Fund, Inc. March 24, 2005 DEAR FUND SHAREHOLDERS, 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 ended January 31, 2005. The Fund presents investors with the opportunity to own Mexican securities and its objective continues to be superior long-term performance. The Fund's net assets were $45,625,873 on January 31, 2005, as compared to $33,779,149 on July 31,2004, which represents an increase of 35.07% in the value of the Fund's net assets. From July 31, 2004 to January 31, 2005 the Fund's Net Asset Value ("NAV") per share increased 35.07% (including reinvested dividends). For the same period, the Mexican Bolsa IPC Index, which is a measure of the market performance of the leading stocks traded on the Mexican Stock Exchange, increased 33.61% (including reinvested dividends). As we have reported previously, your Board of Directors continues to pursue the necessary regulatory approvals for the registration and listing of put warrants that we propose to issue to our shareholders. These warrants are intended to enable shareholders, at their option, to receive NAV from time to time. It has been almost five years since we first advised the staff of our intent to issue put warrants. We are frustrated about the extraordinary length of time the SEC staff has taken to review the put warrants at a cost to the Fund of approximately $150,000. As a result, it may unfortunately be necessary to sue the SEC for unreasonable delay. We will continue to keep you informed about this matter. As we have previously stated, it is our belief that if the Fund is able to issue put warrants, the discount at which the Fund's common stock trades relative to its NAV will be permanently reduced. Once the discount is under control, your Board of Directors will consider measures to increase the asset base of the Fund in order to reduce the expense ratio. On behalf of the Board of Directors, we thank you for your continued support of the Fund. If you have any questions, please call our toll-fee number (866) 700-6104. Sincerely yours, /s/ Phillip Goldstein Phillip Goldstein Chairman of the Board of Directors 1 (This page intentionally left blank.) 2 THE MEXICO EQUITY AND INCOME FUND, INC. Report of the Investment Adviser FOR THE SIX MONTHS ENDED JANUARY 31, 2005 Dear Fund Shareholder, We are pleased to provide you with the report of the Investment Adviser of The Mexico Equity and Income Fund, Inc. ("The Fund"), for the semi-annual period ended January 31, 2005. - -------------------------------------------------------------------------------- MEXICO'S ECONOMIC REVIEW In 2004 Mexico's economy grew 4.4% after 0.9% and 1.3% meager growth in 2002 and 2003 respectively. On a seasonally adjusted basis, 2004 GDP grew 1.36% quarter-on-quarter, which represents an annualized rate of 5.5% for the whole year. The main factors driving Mexico's economic recovery during 2004 were: (i) 7.5% gross fixed investment growth, (ii) 3.8% industrial production increase and (iii) 14.7% export activity growth rate. During the semi-annual period ended January 31, 2005 real economic activity was also marked by ongoing strong economic data, mainly related to US manufacturing industry. Financial indicators continued stable and in line with the observed trend of the previous three years: (i) 12-month inflation ended the semi-annual period at 4.54% compared to 4.49% for the same earlier period. Banco de Mexico, (the central bank), reaffirmed its inflation 3% +- 1% target in 2005. (ii) The 28-day CETES rate (treasury bills) increased 190 basis points to 9.2% during the semi-annual period in tandem with the FED's interest rate hikes and it will most likely continue to increase interest rates until pressures from Consumer Price Index subside. (iii) The Mexican Peso gained 2.8% to the U.S. Dollar, in view of the current low yield/lower risk environment that has triggered inflows to emerging markets and to the Latin American region. Higher international oil prices and inflows from Mexicans abroad have also helped for a strong Mexican Peso during the semi-annual period. FUND UPDATES The Fund's toll-free phone number is (866) 700-6104. TRACKING THE FUND'S NAV The Fund's net asset value (NAV) is calculated daily 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 Barron's on Saturdays and in The New York Times on Mondays. The Fund is listed on the New York Stock Exchange under the ticker symbol MXE. 3 THE MEXICO EQUITY AND INCOME FUND, INC. - -------------------------------------------------------------------------------- THE MEXICAN STOCK EXCHANGE For the six months ended January 31, 2005, the Mexican Bolsa IPC Index "The "Mexbol" gained 33.6% in dollar terms as a result of: (i) Mexico's sound economic fundamentals. (ii) Strong corporate earnings. During the fourth quarter, financial results, revenues, operating profit and EBITDA (earnings before interest, taxes, depreciation and amortization) grew 16.1%, 18.9% and 14.9%, respectively. (iii) Continuation of the strong commodity cycle. (iv) Strong capital inflows to emerging stock markets, and, in particular to the Latin American region, afforded by the Fed's accommodative stance. (v) And, to a lesser extent, Mexico's compulsory pension fund system that was able to start investing in domestic and international equities and bonds on January 17, 2005. According to UBS Investment Bank they estimate they could invest up to US$2.2 billion in 2005. In general terms, over-performing sectors for the six-month period ended January 31, 2005 continued to be related to the housing, commodities (steel and copper), financial and wireless telephony sectors while underperforming sectors continued to be beverages, retailing and consumer staples. For the six-months ended January 31, 2005, the Mexbol ranked fifth in the Latin American region after Colombia, +70.3%, Argentina +44.7%, Peru +44.0% and Chile +34.7%, and over-performed Brazil +26.4% and Venezuela +18.0%. By comparison, the Dow Jones gained 4.6% and the Nasdaq Composite Index gained 9.6% for the same period. The Mexbol's 12 month trailing EV/EBITDA multiple as at the end of January 2005 was 8.2x compared to 7.4x at the end of July 2004. Although, estimated EV/EBITDA multiple is expected to decrease to 7.3x by the end of 2005. Strong economic growth, a lower financing risk and the de-leveraging of companies' balance sheets are some of the fundamentals reasons underpinning the Mexbol re-rating. 4 THE MEXICO EQUITY AND INCOME FUND, INC. - -------------------------------------------------------------------------------- THE FUND'S PERFORMANCE For the six-months ended January 31, 2005, the Fund's Net Asset Value "NAV" per share gained 35.1%, out-performing "The Mexbol" 's 33.6% gain and The Mexico Fund, "The MXF" 's 28% NAV per share gain during the same period. The MXF is the MXE's fully comparable peer. The Fund's common share market price gained 39.2% for the semi-annual period, and it ended January at a -11.5% discount to that of its "NAV". The Fund's 13.78% "NAV" total dollar annual return as of January 31, 2005, since its inception on August 30, 1990, continues to place "The MXE" as a leading closed-end fund. (Return calculations are according to Thomson Financial.) - -------------------------------------------------------------------------------- PORTFOLIO STRATEGY For the six months ended January 31, 2005, the Fund continued to have a balance portfolio with a 95% weight in equities and 5% in fixed income. Pichardo Asset Management, "PAM" 's investment strategy which is based on the fundamental analysis of companies, classified in six asset categories, has been the main tool for your investment adviser to better assess the stocks' risk/return when making an investment decision and the Fund's stocks reallocation. PAM's own methodology valuation indicated that the Fund's "value" stocks (which had been the engine of the Fund's performance for the last two years), have expanded their multiples by 19% approximately since the Fund's fiscal year ending as of July 2004. Meanwhile, "quality growth" stocks expanded their multiples by 11% and they are fairly valued when compared to their historic averages and in view of their superior capabilities, i.e.: strong balance sheets, superior cost-efficient capabilities and strong free cash flow generation. In view of this re-rating of multiple valuations across all sectors of the Mexbol, we decided to carefully overweight "quality-growth stocks" versus "value" stocks and pricey commodity stocks starting December 31, 2004. 5 THE MEXICO EQUITY AND INCOME FUND, INC. For the Fund's semi-annual period, the main asset categories that contributed the most to the Fund's performance were: (i) Stocks related to the "undervalued and restructuring stories" asset class as a result of the completion of restructuring processes and/or de-leveraging of balance sheets resulted in companies' valuations increasing over 6 times compared to less than 5 times at the end of July 2004; and (ii) Fast-growing business asset category where higher EV/EBITDA multiple valuations were justified by companies' double digit revenue and EBITDA growth. - -------------------------------------------------------------------------------- CONCLUSION AND OUTLOOK Mexico's economic growth of 4.4% in 2004 and expected similar one in 2005; after three years of sluggish economic growth, is the result of a solid macro scenario and financial variables, as well as high international oil prices, capital inflow from Mexicans abroad and the driving force of the U.S. strong economic growth. The high correlation between Mexican and U.S. industrial production is the result of the 1995 NAFTA agreement that has benefited Mexico since then, ties Mexico to the US risk however. Approval in Congress of the long awaited energy, labor and fiscal structural reforms may help Mexico to have a higher-sustained economic growth rate and to reduce the high correlation to that of the U.S. We believe that "The Mexbol" 's 50.5% rally for the 2004 calendar year, and the Fund's 35.1% performance for the six-month period ended January 2005, were mainly the result of: sound economic fundamentals, within a context of continued synchronized global economic growth, and capital inflows to emerging markets. Mexico's oil mix price +16% higher than targeted in the 2005 budget, as well as, US Fed accommodative stance, accounted also for a sound Mexbol. The Fund's 35.1% "NAV" per share gain for the six-month period ended January 2005 continued to over-perform "The Mexbol" by 150 basis points and "The MXF" by 710 bp. The sectors we like the most are cement, telecommunication (mainly wireless telephony), infrastructure, transport, media, and retail as well as commodities (mainly copper). We continue to maintain an overweight in equities, as we believe Mexico's fundamentals are strong and companies are internationally competitive leading firms, which will continue to benefit from the current global high economic growth. 6 THE MEXICO EQUITY AND INCOME FUND, INC. The Fund's overweight in "quality-growth" stocks, large cap companies, has set up a solid fundamental portfolio to encounter the expected market's volatility due to the running period for the July 2006 presidential election. - -------------------------------------------------------------------------------- RELEVANT INFORMATION
REAL ACTIVITY 1999 2000 2001 2002 2003 2004 - ------------------------ -------- -------- -------- -------- -------- -------- Real GDP Growth (y-o-y)............... 3.7% 6.6% (0.3)% 0.9% 1.30% 4.4% Industrial Production (y-o-y)............... 4.2% 6.0% (3.5)% 0.0% (0.75)% 3.8% Trade Balance (US billions)............. $ (5.6) $ (8.0) $ (10.0) $ (8.0) $ (5.6) $ (8.1) Exports................. 136.4 166.5 158.4 160.7 164.8 189.1 Export growth (y-o-y)... 16.1% 22.1% (4.9)% 1.5% 2.5% 14.7% Imports................. $(142.00) $(174.50) $(168.40) $(168.70) $(170.50) $(197.20) Import growth (y-o-y)... 13.2% 22.9% (3.5)% 0.2% 1.1% 15.7%
FINANCIAL VARIABLES AND PRICES 1999 2000 2001 2002 2003 2004 2/28/2005 - ------------------------------ -------- -------- -------- -------- -------- -------- ----------- 28-Day CETES (T-bills)/ Average.................. 31.40% 15.30% 11.20% 7.10% 6.24% 8.60% 9.20% Exchange rate (Pesos/US$)/ Average.................. 9.56 9.46 9.34 9.66 10.79 11.147 11.0913 Inflation IPC, 12 month trailing................. 12.3% 9.0% 4.4% 5.7% 4.2% 5.4% 4.3%
12/31/04 TO MEXBOL INDEX 1999 2000 2001 2002 2003 2004 2/28/05 - ------------------------- -------- -------- -------- -------- -------- -------- ----------- USD Return............... 90.39% (20.81)% 20.88% (14.43)% 33.61% 50.49% 7.30% Market Cap. (US Billions).............. $ 112.96 $ 111.7 $ 112.4 $ 103.8 $ 124.7 $ 169.5 $ 171.9 EV/EBITDA................ 10.5x 7.9x 8.1x 6.6x 7.8x 8.3x 8.2x
FUND'S NAV & COMMON SHARE MARKET PRICE PERFORMANCE
12/31/04 TO USD RETURN 1999 2000 2001 2002 2003 2004 2/28/05 - --------------------- ------ ------ ----- ------ ------ ------ ----------- NAV's per share...... 59.17% (14.06)% 9.98% (13.51)% 40.0% 55.6% 8.4% Share Price.......... 74.7% (5.7)% 18.7% (18.5)% 36.0% 66.6% 7.7%
Source: Thomson 7 THE MEXICO EQUITY AND INCOME FUND, INC. FUND'S ASSET CATEGORIES
(%) NET ASSETS) 2001(*) END 2002 END 2003 END 2004 1/31/2005 2/28/05 - ---------------------- ------- -------- -------- -------- --------- --------- Strong market position............ 22.9% 28.2% 32.7% 32.3% 24.6% 28.8% Undervalued-restructuring stories............. 18.5% 15.6% 27.7% 18.9% 20.8% 12.2% Fast growing business segments............ 14.9% 8.8% 17.8% 30.8% 35.4% 31.9% Financial groups...... 19.4% 14.4% 7.5% 4.2% 3.4% 2.8% Globally consolidated industries.......... 9.1% 13.8% 6.4% 3.0% 3.3% 7.0% Global leaders........ 9.1% 5.9% 4.6% 6.2% 6.6% 12.9% Warrants/Equity mutual funds............... 0.0% 1.7% 0.0% 0.0% 0.0% 0.0% Fixed income.......... 6.0% 19.6% 3.4% 4.6% 5.9% 4.6%
* Equities allocation was initially classified by asset categories starting on May 31, 2001. As always, we look forward to continuing to offer you an attractive alternative for asset diversification and the opportunity to remain active in Mexico, which, we believe, is one of the most promising emerging markets in the world. Thank you for your continued support. Sincerely yours, /s/ MARIA EUGENIA PICHARDO Maria Eugenia Pichardo Portfolio Manager Pichardo Asset Management, S.A. de C.V. THE DISCUSSION ABOVE REFLECTS THE OPINIONS OF THE PORTFOLIO MANAGER. THESE OPINIONS ARE SUBJECT TO CHANGE AND ANY FORECASTS MADE CANNOT BE GUARANTEED. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. SECTOR ALLOCATIONS AND FUND HOLDINGS ARE SUBJECT TO CHANGE AND ARE NOT RECOMMENDATIONS TO BUY OR SELL ANY SECURITY. PLEASE REFERENCE THE FOLLOWING SEMI-ANNUAL REPORT FOR MORE COMPLETE FUND INFORMATION. 8 THE MEXICO EQUITY AND INCOME FUND, INC. Allocation of Portfolio Assets JANUARY 31, 2005 (CALCULATED AS A PERCENTAGE OF NET ASSETS) (UNAUDITED) (BAR CHART)
FOOD, BEVERAGE, AND INDUSTRIAL CORPORATE COMMUNICATIONS TOBACCO RETAILING CONGLOMERATES MINING CONSTRUCTION CEMENT MEDIA BONDS -------------- --------- --------- ------------- ------ ------------ ------ ----- --------- 20.54% 15.19% 12.33% 11.08% 8.81% 6.93% 4.91% 4.83% 4.26% OTHER ASSETS IN EXCESS FINANCIAL REAL SPECIALTY OF INVESTMENT GROUPS AIRLINES ESTATE STORES LIABILITIES COMPANIES --------- -------- ------ --------- ----------- ---------- 3.38% 3.21% 1.69% 1.35% 1.12% 0.37%
See Notes to the Financial Statements. 9 THE MEXICO EQUITY AND INCOME FUND, INC. Schedule of Investments JANUARY 31, 2005 (UNAUDITED)
MEXICO - 98.88% SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCKS - 94.25% - ---------------------------------------------------------------------------------------------- AIRLINES - 3.21% Cintra, S.A. de C.V.*..................................... 504,700 $ 310,460 Grupo Aeropuertario del Sureste S.A. de C.V. - Class B.... 433,000 1,152,273 ----------- 1,462,733 ----------- COMMUNICATIONS - 20.54% America Movil, S.A. de C.V. - Class L..................... 1,173,300 3,096,165 America Movil, S.A. de C.V. - Class L ADR................. 42,300 2,244,438 America Telecom, S.A. de C.V. - Class A1*................. 921,000 2,680,810 Telefonos de Mexico, S.A. de C.V. - Class L............... 358,300 667,281 Telefonos de Mexico, S.A. de C.V. - Class L ADR........... 18,302 681,750 ----------- 9,370,444 ----------- CEMENT - 4.91% Cemex, S.A. de C.V. CPO................................... 299,642 2,240,971 ----------- CONSTRUCTION - 6.93% Corporacion GEO, S.A., de C.V. - Class B*................. 503,500 1,206,569 SARE Holding, S.A. de C.V. - Class B*..................... 459,900 369,822 Urbi, Desarrollos Urbanos, S.A. de C.V.*.................. 294,200 1,587,059 ----------- 3,163,450 ----------- FINANCIAL GROUPS - 3.38% Grupo Financiero Banorte, S.A. de C.V. - Class O.......... 240,000 1,539,877 ----------- FOOD, BEVERAGE, AND TOBACCO - 15.19% Alsea, S.A. de C.V. ...................................... 1,041,453 2,145,670 Embotelladroas Arca S.A. ................................. 81,700 170,873 Gruma S.A. - Class B...................................... 567,600 1,347,525 Grupo Bafar, S.A. - Class B............................... 100,000 311,937 Grupo Bimbo S.A. de C.V. - Class A........................ 573,000 1,596,349 Grupo Embotelladoras Unidas, S.A. de C.V. - Class B....... 312,900 1,357,100 ----------- 6,929,454 -----------
See Notes to the Financial Statements. 10 Schedule of Investments (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC.
COMMON STOCKS (CONTINUED) SHARES VALUE - ---------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 11.08% Alfa, S.A. - Class A...................................... 353,700 $ 1,815,326 Grupo Carso, S.A. de C.V. - Class A1...................... 100,600 561,340 Grupo IMSA, S.A. de C.V. UBC.............................. 30,000 87,884 Hylsamex, S.A. de C.V. - Class B*......................... 284,900 863,310 Hylsamex, S.A. de C.V. - Class L*......................... 496,979 1,504,185 Industrias CH, S.A. - Class B*............................ 77,700 224,365 ----------- 5,056,410 ----------- MEDIA - 4.83% Grupo Televisa, S.A. ADR.................................. 13,000 764,790 Grupo Televisa, S.A. CPO.................................. 488,700 1,438,173 ----------- 2,202,963 ----------- MINING - 8.81% Grupo Mexico, S.A. de C.V. - Class B*..................... 646,100 3,248,070 Industrias Penoles, S.A. de C.V. ......................... 147,800 773,456 ----------- 4,021,526 ----------- REAL ESTATE - 1.69% Consorcio ARA, S.A. de C.V. - SER*........................ 212,600 772,919 ----------- RETAILING - 12.33% Grupo Elektra, S.A. de C.V. .............................. 49,300 419,514 Organizacion Soriana, S.A. de C.V. - Class B.............. 496,700 1,752,642 Wal-Mart de Mexico, S.A. de C.V. - Class V................ 1,002,684 3,454,911 ----------- 5,627,067 ----------- SPECIALTY STORES - 1.35% Corporativo Fragua, S.A. - Class B........................ 173,100 615,734 ----------- TOTAL COMMON STOCKS (Cost $34,285,561).................... 43,003,548 -----------
See Notes to the Financial Statements. 11 Schedule of Investments (concluded) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC.
CORPORATE BONDS - 4.26% TITLES VALUE - ---------------------------------------------------------------------------------------------- Hylsamex, S.A. de C.V., 8.7500%, 03/08/2009............... 14,015 $ 466,797 Hylsamex, S.A. de C.V., 8.7500%, 09/08/2009............... 14,015 466,797 TVACB-04, 9.1000%, 12/15/2011............................. 11,265,000 1,009,092 ----------- TOTAL CORPORATE BONDS (Cost $1,703,721)................... 1,942,686 ----------- INVESTMENT COMPANIES - 0.37% SHARES - ---------------------------------------------------------------------------------------------- GBM Fondo Corporativo de Liquidez Inmediata S.A. de C.V. SIID para Personas Morales - Class B*................... 1,188,779 170,196 ----------- TOTAL INVESTMENT COMPANIES (Cost $169,105)................ 170,196 ----------- TOTAL MEXICO (Cost $36,158,387)........................... 45,116,430 ----------- TOTAL INVESTMENTS (COST $36,158,387) - 98.88%............. 45,116,430 ----------- OTHER ASSETS IN EXCESS OF LIABILITIES - 1.12%............. 509,443 ----------- TOTAL NET ASSETS - 100.00%................................ $45,625,873 ===========
FOOTNOTES AND ABBREVIATIONS * - Non-income producing security. ADR - American Depository Receipts. See Notes to the Financial Statements. 12 THE MEXICO EQUITY AND INCOME FUND, INC. Statement of Assets & Liabilities JANUARY 31, 2005 (UNAUDITED) ASSETS: Investments, at value (Cost $36,158,387).................... $45,116,430 Foreign currencies (Cost $469,292).......................... 470,993 Cash........................................................ 107,772 Receivables: Investments sold.......................................... 820,623 Interest.................................................. 6,242 Prepaid expenses............................................ 24,789 ----------- TOTAL ASSETS.............................. 46,546,849 ----------- LIABILITIES: Payable for securities purchased............................ 797,759 Advisory fees payable....................................... 20,378 Administration fees payable................................. 13,360 Fund accounting fees payable................................ 11,697 Directors' fees payable..................................... 11,668 Custody fees payable........................................ 4,765 Accrued expenses............................................ 61,349 ----------- TOTAL LIABILITIES......................... 920,976 ----------- NET ASSETS................................ $45,625,873 =========== NET ASSET VALUE PER SHARE ($45,625,873/2,473,504)................ $ 18.45 =========== NET ASSETS CONSIST OF: Capital stock, $0.001 par value; 2,473,504 shares outstanding (100,000,000 shares authorized)............... $ 2,474 Paid in capital............................................. 34,534,300 Undistributed net investment loss........................... (212,734) Accumulated net realized gain on investments and foreign currency.................................................. 2,341,589 Net unrealized appreciation on investments and foreign currency.................................................. 8,960,244 ----------- NET ASSETS................................ $45,625,873 ===========
See Notes to the Financial Statements. 13 THE MEXICO EQUITY AND INCOME FUND, INC. Statement of Operations FOR THE SIX MONTHS ENDED JANUARY 31, 2005 (UNAUDITED) INVESTMENT INCOME: Dividends................................................................. $ 138,608 Interest.................................................................. 4,107 ----------- TOTAL INVESTMENT INCOME................................. 142,715 ----------- EXPENSES: Advisory fees............................................... $158,945 Legal fees.................................................. 48,264 Administration fees......................................... 24,121 Fund accounting fees........................................ 21,200 Directors' fees and expenses................................ 19,716 Insurance expense........................................... 18,940 Custodian fees.............................................. 15,568 Reports to shareholders..................................... 14,968 NYSE fees................................................... 9,708 Audit fees.................................................. 9,420 Other expenses.............................................. 8,967 Transfer agent fees......................................... 6,132 ----------- TOTAL EXPENSES.......................................... 355,949 LESS, EXPENSE REIMBURSEMENT BY ADVISER.................. (500) ----------- NET EXPENSES............................................ 355,449 ----------- NET INVESTMENT LOSS....................................................... (212,734) ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investments and foreign currency transactions...... 5,257,114 Net change in unrealized appreciation (depreciation) from investments and foreign currency transactions........................................... 6,802,344 ----------- Net gain from investments and foreign currency transactions............... 12,059,458 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $11,846,724 ===========
See Notes to the Financial Statements. 14 THE MEXICO EQUITY AND INCOME FUND, INC. Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED FOR THE YEAR JANUARY 31, 2005 ENDED (UNAUDITED) JULY 31, 2004 ---------------- ------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment loss.................................... $ (212,734) $ (41,536) Net realized gain from investments and foreign currency transactions......................................... 5,257,114 9,589,282 Net change in unrealized appreciation (depreciation) from investments and foreign currency transactions... 6,802,344 (834,386) ----------- ----------- Net increase in net assets resulting from operations........................................ 11,846,724 8,713,360 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. -- (38,226) Net realized gains..................................... -- -- Return of capital...................................... -- -- ----------- ----------- Net decrease in net assets from distributions........ -- (38,226) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares repurchased under Tender Offer.................. -- -- ----------- ----------- Net decrease in net assets from capital share transactions......................................... -- -- ----------- ----------- Total increase in net assets........................... 11,846,724 8,675,134 NET ASSETS: Beginning of period.................................... 33,779,149 25,104,015 ----------- ----------- End of period*......................................... $45,625,873 $33,779,149 =========== =========== *Including undistributed net investment income (loss) of:............................................... $ (212,734) $ -- ----------- -----------
See Notes to the Financial Statements. 15 THE MEXICO EQUITY AND INCOME FUND, INC. Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE SIX MONTHS ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR JANUARY 31, 2005 ENDED ENDED ENDED ENDED ENDED (UNAUDITED) JULY 31, 2004 JULY 31, 2003 JULY 31, 2002 JULY 31, 2001 JULY 31, 2000 ---------------- ------------- ------------- ------------- ------------- ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.... $13.66 $10.15 $ 8.74 $10.19 $11.36 $ 8.64 ------ ------ ------ ------ ------ ------ Net investment income (loss)................. (0.09) (0.02)(1) 0.00(2) (0.03)(1) (0.02) 0.03 Net realized and unrealized gains (losses) on investments and foreign currency transactions........... 4.88 3.55 1.41 (1.42) (0.64) 2.62 ------ ------ ------ ------ ------ ------ Net increase (decrease) from investment operations............. 4.79 3.53 1.41 (1.45) (0.66) 2.65 ------ ------ ------ ------ ------ ------ Less: Distributions Dividends from net investment income... -- (0.02) -- -- (0.01) (0.12) Distributions from net realized gains...... -- -- -- -- (0.60) -- Return of capital...... -- -- -- -- (0.01) -- ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... -- (0.02) -- -- (0.62) (0.12) Capital Share Transactions Anti-dilutive effect of Tender Offer........ -- -- -- -- 0.09 -- Anti-dilutive effect of Share Repurchase Program............. -- -- -- -- 0.02 0.19 ------ ------ ------ ------ ------ ------ Total capital share transactions........... -- -- -- -- 0.11 0.19 ------ ------ ------ ------ ------ ------ Net Asset Value, end of period................. $18.45 $13.66 $10.15 $ 8.74 $10.19 $11.36 ====== ====== ====== ====== ====== ====== Per share market value, end of period.......... $16.33 $11.73 $ 9.10 $ 7.95 $ 9.11 $10.69 Total Investment Return Based on Market Value, end of period*......... 39.22%(-) 29.10% 14.47% (12.73)% (8.64)% 53.36%
See Notes to the Financial Statements. 16 Financial Highlights (concluded) THE MEXICO EQUITY AND INCOME FUND, INC. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE SIX MONTHS ENDED FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR JANUARY 31, 2005 ENDED ENDED ENDED ENDED ENDED (UNAUDITED) JULY 31, 2004 JULY 31, 2003 JULY 31, 2002 JULY 31, 2001 JULY 31, 2000 ---------------- ------------- ------------- ------------- ------------- ------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000s)...................... $45,626 $33,779 $25,104 $21,629 $87,620 $114,112 Ratios of expenses to average net assets: Before expense reimbursement............ 1.79%+ 2.09% 2.64% 1.81% 1.90% 2.03% After expense reimbursement............ 1.79%+ 2.08% 2.62% 1.81% 1.90% 2.03% Ratios of net investment income (loss) to average net assets: Before expense reimbursement............ (1.07)%+ (0.15)% 0.02% (0.14)% (0.16)% 0.27% After expense reimbursement............ (1.07)%+ (0.14)% 0.04% (0.14)% (0.16)% 0.27% Portfolio turnover rate...... 126.77% 234.42% 180.67% 189.05% 220.85% 249.28%
* 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. Total investment does not reflect brokerage commissions. (1) Net investment income (loss) per share is calculated using ending balances prior to consideration of adjustments for permanent financial reporting and tax differences. (2) The amount listed is less than $0.005 per share. + Annualized (-) Not Annualized. See Notes to the Financial Statements. 17 THE MEXICO EQUITY AND INCOME FUND, INC. Notes to Financial Statements JANUARY 31, 2005 (UNAUDITED) 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. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 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). 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. Other assets and securities for which no quotations are readily available will be valued in good faith at fair value using methods determined by the Board of Directors. As of January 31, 2005, the Fund held no securities for which market values were not readily ascertainable. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. 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, using reasonable diligence, when known to the Fund. 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 continue to qualify as a regulated investment company and to make the requisite distributions to its shareholders that will be sufficient to relieve it from all or substantially all U.S. 18 Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC. Federal income and excise taxes. At July 31, 2004, the Fund had capital loss carryovers of $2,727,479 expiring July 31, 2011, which are available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code. The Fund is subject to the following withholding taxes on income from Mexican sources: Dividends distributed by Mexican companies are subject to withholding tax at an effective rate of 0.00%. Prior to January 1, 2002, the effective rate was 7.69%. Interest income on debt issued by the Mexican federal government is generally not subject to withholding. Withholding tax on interest from other debt obligations such as publicly traded bonds and loans by banks or insurance companies is at a rate of 4.9% under the tax treaty between Mexico and the United States. Gains realized from the sale or disposition of debt securities may be subject to a 4.9% withholding tax. Gains realized by the Fund from the sale or disposition of equity securities that are listed and traded on the Mexican Stock Exchange ("MSE") are exempt from Mexican withholding tax if sold through the stock exchange. Gains realized on transactions outside of the MSE may be subject to withholding at a rate of 25% (20% rate prior to January 1, 2002) of the value of the shares sold or, upon the election of the Fund, at 35% (40% rate prior to January 1, 2002) of the gain. If the Fund has owned less than 25% of the outstanding stock of the issuer of the equity securities within the 12 month period preceding the disposition, then such disposition will not be subject to capital gains taxes as provided for in the treaty to avoid double taxation between Mexico and the United States. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Fund accounts and reports for distributions to shareholders in accordance with the American Institute of Certified Public Accountants' Statement of Position 93-2; Determination, Disclosure and Financial Statement Presentation of Income, Capital, and Return of Capital Distributions by Investment Companies. For the year ended July 31, 2004, the Fund increased undistributed net investment income by $63,437 and decreased accumulated net realized loss on investments by $27,445, and decreased paid-in capital by $90,882, due to the tax treatment of foreign currency gains and losses. 19 Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC. 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 Mexican peso exchange rate on the valuation date, and (ii) purchases and sales of investment securities, income and expenses at the Mexican peso exchange rate prevailing on the respective dates of such transactions. 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. The Fund does isolate the effect of fluctuations in foreign currency rates, however, when determining the gain or loss upon the sale of foreign currency denominated debt obligations pursuant to U.S. Federal income tax regulations; such amounts are categorized as foreign exchange gain or loss for income tax reporting purposes. The Fund reports realized foreign exchange gains and losses on all other foreign currency related transactions as components of realized gains and losses for financial reporting purposes, whereas such gains and losses are treated as ordinary income or loss for Federal income tax purposes. Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in the foreign exchange rate. 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. 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. The Fund also intends 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 Directors of the Fund determine that the decrease in the size of the Fund's assets resulting from the distribution of the gains would generally not be in the interest of the Fund's shareholders. An additional distribution may be made to the extent necessary to avoid payment of a 4% U.S. 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 U.S. Federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are either considered temporary or 20 Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC. 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 capital gains, respectively. 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. DISTRIBUTIONS TO SHAREHOLDERS. The tax character of distributions paid to shareholders during the periods ended January 31, 2005 and July 31, 2004 were as follows:
DISTRIBUTIONS PAID FROM: 1/31/05 7/31/04 - ------------------------ ------- ------- Ordinary Income............................................. $ -- $38,226 Long-Term Capital Gain...................................... -- -- Return of Capital........................................... -- -- ------- ------- Total....................................................... $ -- $38,226 ======= =======
As of July 31, 2004, the components of distributable earnings on a tax basis were as follows: Cost of investments and foreign currency (a)................ $36,764,680 ----------- Gross tax unrealized appreciation........................... 9,122,571 Gross tax unrealized depreciation........................... (25,326) ----------- Net tax unrealized appreciation............................. $ 9,097,245 =========== Undistributed ordinary income............................... $ -- Undistributed long-term capital gain........................ -- ----------- Total distributable earnings................................ $ -- =========== Other accumulated gains..................................... $ 1,991,854 ----------- Total accumulated earnings.................................. $11,089,099 ===========
(a) Represents cost for federal income tax purposes. Differences between the Fund's cost basis of investment and foreign currency at July 31, 2004, for book and tax purposes, relate primarily to the deferral of losses related to wash sales. 21 Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC. NOTE B: MANAGEMENT, INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES Pichardo Asset Management, S.A. de C.V. serves as the Fund's Investment Adviser (the "Investment Adviser") under the terms of the Investment Advisory Agreement (the "Advisory Agreement") effective July 1, 2003. Pursuant to the Advisory Agreement, the Investment Adviser makes investment decisions for the Fund and supervises the acquisition and disposition of securities by the Fund. For its services, the Investment Adviser receives a monthly fee at an annual rate of 0.80% of the Fund's average daily net assets. For the six months ended January 31, 2005, these fees amounted to $158,945. The Investment Adviser has voluntarily agreed to reimburse the Fund for certain fees and expenses on an annual basis. These expense reimbursements may be terminated at any time. For the six months ended January 31, 2005, the total expense reimbursements made by the Investment Adviser amounted to $500. The Fund pays each of its directors who is not a director, officer or employee of the Investment Adviser, the Administrator or any affiliate thereof an annual fee of $5,000 plus $700 for each Board of Directors meeting attended and $100 for each special telephonic meeting attended. At the Board of Directors' meeting held on September 28, 2004, Mr. Gerald Hellerman was appointed Chief Compliance Officer of the Fund. For serving the Fund as Chief Compliance Officer, in addition to the aforementioned Directors' fees, Mr. Hellerman receives annual compensation in the amount of $24,000. In addition, the Fund reimburses the directors for travel and out-of-pocket expenses incurred in connection with Board of Directors' meetings. U.S. Bancorp Fund Services, LLC ("USBFS"), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund's Administrator and, in that capacity, performs various administrative and accounting services for the Fund. USBFS also serves as the Fund's Fund Accountant (the "Fund Accountant"). U.S. Bank, N.A. serves as the Fund's custodian (the "Custodian"). The Custodian is an affiliate of the Administrator. The Administrator prepares various federal and state regulatory filings, reports and returns for the Funds; prepares reports and materials to be supplied to the directors; monitors the activities of the Fund's Custodian and Fund Accountant; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee at the following annual rate (subject to a minimum annual fee of $50,000 through July 31, 2004, $53,000 through July 31, 2005, then $57,000 through July 31, 2006): 0.12% of average daily net assets up to $200 million, plus 0.10% of average daily net assets from $200 million to $700 million, plus 0.05% of average daily net assets on the remaining balance above $700 million 22 THE MEXICO EQUITY AND INCOME FUND, INC. Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) For its services, the Fund Accountant receives a monthly fee at the following annual rate: $42,000 minimum annual fee on average daily net assets up to $100 million, plus 0.030% of average daily net assets from $100 million to $300 million, plus 0.015% of average daily net assets on the remaining balance above $300 million For its services, the Custodian receives a monthly fee at the following annual rate: $12,000 minimum base fee, plus 0.03% of average daily custody balance For the six months ended January 31, 2005, the Mexico Equity and Income Fund, Inc. incurred Administration fees of $24,121, Fund Accounting fees of $21,200 and Custody fees of $15,568. Certain officers of the Fund are also officers of the Administrator. NOTE C: PORTFOLIO ACTIVITY Purchases and sales of securities other than short-term obligations, aggregated $51,355,262 and $50,538,055 respectively, for the six months ended January 31, 2005. At January 31, 2005 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 limited. NOTE D: CAPITAL STOCK During the six months ended January 31, 2005 and the years ended July 31, 2004, July 31, 2003 and July 31, 2002, the Fund made no repurchases pursuant to the program. Pursuant to the share repurchase program, during the year ended July 31, 2001, the Fund purchased 174,000 shares of capital stock in the open market at a total cost of $1,703,552. The weighted average discount of these purchases comparing the purchase price to the net asset value at the time of purchase was 9.01%. During the fiscal year ended July 31, 2000, the Fund purchased 1,199,700 shares of capital stock in the open market at a total cost of $10,573,159. The weighted average discount of these purchases comparing the purchase prices to the net asset value at the time of purchase was 16.40%. 23 Notes to Financial Statements (continued) JANUARY 31, 2005 (UNAUDITED) THE MEXICO EQUITY AND INCOME FUND, INC. NOTE E: SUBSEQUENT EVENT At a Board of Directors meeting held on March 22, 2005, the Board unanimously approved the continuation of the Investment Advisory Agreement between the Fund and Pichardo Asset Management, S.A. de C.V. through June 30, 2006. 24 THE MEXICO EQUITY AND INCOME FUND, INC. Additional Information JANUARY 31, 2005 (UNAUDITED) Information about Proxy Voting Information regarding how the Fund votes proxies relating to portfolio securities is available without charge upon request by calling toll-free at 1-888-294-8217 and the SEC's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the twelve months ending June 30, 2004 is available. Availability of Quarterly Portfolio Schedule The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The filing will be available, upon request, by calling 1-888-294-8217. Furthermore, you will be able to obtain a copy of the filing on the SEC's website at http://www.sec.gov beginning with the filing for the period ended October 31, 2004. The Fund's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. 25 THE MEXICO EQUITY AND INCOME FUND, INC. Dividends and Distributions (unaudited) DIVIDEND REINVESTMENT PLAN The Fund intends to distribute to shareholders substantially all of its net investment company taxable income at least annually. Investment company taxable income, as defined in section 852 of the Internal Revenue Service Code of 1986, 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 interest of the Fund's shareholders generally. Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), each shareholder will be deemed to have elected, unless the Plan Agent (as defined below) is otherwise instructed by the shareholder in writing, to have all distributions, net of any applicable U.S. withholding tax, automatically reinvested in additional shares of the Fund by Computershare Trust Company, Inc., the Fund's transfer agent, as the Plan Agent (the "Plan Agent"). Shareholders 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 shareholder by the Plan Agent, as dividend-paying agent. Shareholders 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 Computershare Investor Services, ATTN: Mr. Charles Zade, 2 North La Salle Street, Chicago, Illinois 60602. Dividends and distributions with respect to shares of the Fund's Common Stock 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 shareholder elects to receive dividends and distributions in cash. A shareholder 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 as agent for the shareholders 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 shareholders 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 at net asset value; or, if the net asset value is less than 26 THE MEXICO EQUITY AND INCOME FUND, INC. Dividends and Distributions (unaudited) (continued) 95% of the market price on the valuation date, then such shares will be issued 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 Common Stock from the Fund valued at market price. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next preceding trading day. If the Fund should declare an income dividend or capital gains distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market on the New York Stock Exchange or elsewhere, for the participants' accounts on, or shortly after, the payment date. The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in an account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in noncertified form in the name of the participant, and each shareholder's proxy will include those shares purchased pursuant to the Plan. In the case of shareholders such as banks, brokers or nominees that hold shares for others who are beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholders as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who participate in the Plan. There is no charge to participants for reinvesting dividends or capital gains distributions payable in either Common Stock or cash. The Plan Agent's fees for the handling or 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. Brokerage charges for purchasing small amounts of Common 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. 27 THE MEXICO EQUITY AND INCOME FUND, INC. Dividends and Distributions (unaudited) (concluded) The receipt of dividends and distributions in Common 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 participants at least 30 days before the record date for such dividend or distribution. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, or rules or policies of a regulatory authority) only upon at least 30 days' written notice to participants. All correspondence concerning the Plan should be directed to the Plan Agent at the address above. 28 THE MEXICO EQUITY AND INCOME FUND, INC. Results of Annual Stockholders Meeting (unaudited) The Fund's Annual Stockholders meeting was held on October 25, 2004, at 405 Lexington Avenue, New York, New York 10174. As of September 24, 2004, the record date, outstanding shares of common stock ("shares") of the Fund were 2,473,504. Holders of 2,218,654 shares of the Fund were present at the meeting either in person or by proxy. These holders, as being holders of a majority of the outstanding shares of the Fund, constituted a quorum. The stockholders voted on one proposal. The stockholders elected a Director to the Board of Directors. The following table provides information concerning the matter voted on at the meeting: I. ELECTION OF DIRECTOR
NOMINEE VOTES FOR VOTES WITHHELD ------- --------- -------------- Gerald Hellerman 2,152,465 66,189
29 THE MEXICO EQUITY AND INCOME FUND, INC. INVESTMENT ADVISER: Pichardo Asset Management, S.A. de C.V. 408 Teopanzolco Avenue 3rd Floor - Reforma Cuernavaca, 62260 Morelos Mexico INDEPENDENT AUDITOR: Tait, Weller & Baker 1818 Market Street, Suite 2400 Philadelphia, PA 19103 ADMINISTRATOR AND FUND ACCOUNTANT: U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202 TRANSFER AGENT AND REGISTRAR: Computershare Investor Services, LLC 2 North La Salle Street Chicago, IL 60602 CUSTODIAN: U.S. Bank, N.A. 425 Walnut Street Cincinnati, OH 45202 The Mexico Equity and Income Fund, Inc. Semi-Annual Report January 31, 2005 ITEM 2. CODE OF ETHICS. Not applicable for semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Effective March 24, 2004, the standing audit committee is comprised of Mr. Andrew Dakos, Mr. Phillip Goldstein, and Mr. Rajeev Das. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. PROXY VOTING POLICIES AND GUIDELINES The Proxy Voting Policies and Guidelines contained in this document summarize The Mexico Equity and Income Fund, Inc.'s (the "Fund") positions on various issues of concern to the Fund's shareholders. These Guidelines give general indication as to how the Fund's Advisor will vote Fund shares on each issue listed. However, this listing does not address all potential voting issues or the intricacies that may surround individual proxy votes. For that reason there may be instances in which votes may vary from the guidelines presented here. The Fund endeavors to vote Fund shares in accordance with the Fund's investment objectives and strategies. The Fund will vote NO on any proposals that would limit or restrict a shareholders rights. I. CORPORATE GOVERNANCE A. BOARD AND GOVERNANCE ISSUES 1. BOARD OF DIRECTOR/TRUSTEE COMPOSITION The Board of Directors is responsible for the overall governance of the corporation. 1 The Fund advisor will OPPOSE slates without at least a majority of independent directors (1/3 of directors who are outsiders to the corporation). The Fund advisor will vote FOR shareholder proposals that request that the board audit, compensation and/or nominating committees include independent directors exclusively. 2. INCREASE AUTHORIZED COMMON STOCK The Fund advisor will generally SUPPORT the authorization of additional common stock necessary to facilitate a stock split. The Fund advisor will generally SUPPORT the authorization of additional common stock, if the company already has a large amount of stock authorized but not issued or reserved for its stock option plans. In this latter instance, there is a concern that the authorized but unissued shares will be used as a poison pill or other takeover defense, which will be OPPOSED. In addition, we will require the company to provide a specific purpose for any request to increase shares by more than 100 percent of the current authorization. 3. BLANK CHECK PREFERRED STOCK Blank check preferred is stock with a fixed dividend and a preferential claim on company assets relative to common shares. The terms of the stock (voting dividend and conversion rights) are set by the Board at a future date without further shareholder action. While such an issue can in theory have legitimate corporate purposes, most often it has been used as a takeover defense since the stock has terms that make the entire company less attractive. The Fund advisor will generally OPPOSE the creation of blank check preferred stock. 4. CLASSIFIED OR "STAGGERED" BOARD On a classified (or staggered) board, directors are divided into separate classes (usually three) with directors in each class elected to overlapping three-year terms. Companies argue that such Boards offer continuity in direction which promotes long-term planning. However, in some instances they may serve to deter unwanted takeovers since a potential buyer would have to wait at least two years to gain a majority of Board seats. The Fund advisor will vote no on proposals involving classified boards. 5. SUPERMAJORITY VOTE REQUIREMENTS Supermajority vote requirements in a company's charter or bylaws require a level of voting approval in excess of a simple majority. Generally, supermajority provisions require at least 2/3 affirmative vote for passage of issues. The Fund advisor will vote no on proposals involving supermajority voting. 6. RESTRICTIONS ON SHAREHOLDERS TO ACT BY WRITTEN CONSENT Written consent allows shareholders to initiate and carry out a shareholder action without waiting until the annual meeting or by calling a special meeting. It permits action to be taken by the written consent of the same percentage of outstanding shares that would be required to effect the proposed action at a shareholder meeting. 2 The Fund advisor will vote no on proposals to limit or eliminate the right of shareholders to act by written consent. 7. RESTRICTIONS ON SHAREHOLDERS TO CALL MEETINGS The Fund advisor will generally OPPOSE such a restriction as it limits the right of the shareholder. 8. LIMITATIONS, DIRECTOR LIABILITY AND INDEMNIFICATION Because of increased litigation brought against directors of corporations and the increased costs of director's liability insurance, many states have passed laws limiting director liability for those acting in good faith. Shareholders however must opt into such statutes. In addition, many companies are seeking to add indemnification of directors to corporate bylaws. The Fund advisor will generally SUPPORT director liability and indemnification resolutions because it is important for companies to be able to attract the most qualified individuals to their Boards. Note: Those directors acting fraudulently would remain liable for their actions irrespective of this resolution. 9. REINCORPORATION Corporations are in general bound by the laws of the state in which they are incorporated. Companies reincorporate for a variety of reasons including shifting incorporation to a state where the company has its most active operations or corporate headquarters, or shifting incorporation to take advantage of state corporate takeover laws. While each reincorporation proposal will be evaluated based on its own merits, the Fund advisor will generally SUPPORT reincorporation resolutions for valid business reasons (such as reincorporating in the same state as the corporate headquarters). 10. CUMULATIVE VOTING Cumulative voting allows shareholders to "stack" their votes behind one or a few directors running for the board, thereby helping a minority of shareholders to win board representation. Cumulative voting gives minority shareholders a voice in corporate affairs proportionate to their actual strength in voting shares. The Fund advisor will generally SUPPORT proposals calling for cumulative voting in the election of directors. 11. DUAL CLASSES OF STOCK In order to maintain corporate control in the hands of a certain group of shareholders, companies may seek to create multiple classes of stock with differing rights pertaining to voting and dividends. The Fund advisor will generally OPPOSE dual classes of stock. However, the advisor will SUPPORT classes of stock offering different dividend rights (such as one class which pays cash dividends and a second which pays stock dividends) depending on the circumstances. 12. LIMIT DIRECTORS' TENURE 3 In general corporate directors may stand for re-election indefinitely. Opponents of this practice suggest that limited tenure would inject new perspectives into the boardroom as well as possibly creating room for directors from diverse backgrounds; however, continuity is important to corporate leadership and in some instances alternative means may be explored for injecting new ideas or members from diverse backgrounds into corporate boardrooms. Accordingly, the Fund advisor will vote on a case-by-case basis attempts to limit director tenure. 13. MINIMUM DIRECTOR STOCK OWNERSHIP The director share ownership proposal requires that all corporate directors own a minimum number of shares in the corporation. The purpose of this resolution is to encourage directors to have the same interest as other shareholders. The Fund advisor will SUPPORT resolutions that require corporate directors to own shares in the company. 14. SELECTION OF AUDITOR Annual election of the outside accountants is standard practice. While it is recognized that the company is in the best position to evaluate the competence of the outside accountants, we believe that outside accountants must ultimately be accountable to shareholders. Furthermore, audit committees have been the subject of a report released by the Blue Ribbon Commission on Improving the Effectiveness of Corporate Audit Committees in conjunction with the NYSE and the National Association of Securities Dealers. The Blue Ribbon Commission concluded that audit committees must improve their current level of oversight of independent accountants. Given the rash of accounting irregularities that were not detected by audit panels or auditors, shareholder ratification is an essential step in restoring investor confidence. The Fund advisor will OPPOSE the resolutions seeking ratification of the auditor when fees for financial systems design and implementation exceed audit and all other fees, as this can compromise the independence of the auditor. The Fund advisor will OPPOSE the election of the audit committee chair if the audit committee recommends an auditors whose fees for financial systems design and implementation exceed audit and all other fees, as this can compromise the independence of the auditor. B. EXECUTIVE COMPENSATION 1. DISCLOSURE OF CEO, EXECUTIVE, BOARD AND MANAGEMENT COMPENSATION On a case-by-case basis, the Fund advisor will SUPPORT shareholder resolutions requesting companies to disclose the salaries of top management and the Board of Directors. 2. COMPENSATION FOR CEO, EXECUTIVE, BOARD AND MANAGEMENT The Fund advisor will OPPOSE an executive compensation proposal if we believe the compensation does not reflect the economic and social circumstances of the company (i.e. at times of layoffs, downsizing, employee wage freezes, etc.). 3. FORMATION AND INDEPENDENCE OF COMPENSATION REVIEW COMMITTEE 4 The Fund advisor will SUPPORT shareholder resolutions requesting the formation of a committee of independent directors to review and examine executive compensation. 4. STOCK OPTIONS FOR BOARD AND EXECUTIVES The Fund advisor will generally OPPOSE stock option plans that in total offer greater than 15% of shares outstanding because of voting and earnings dilution. The Fund advisor will generally OPPOSE option programs that allow the repricing of underwater options. (Repricing divides shareholder and employee interests. Shareholders cannot "reprice" their stock and, therefore, optionees should not be treated differently). The Fund advisor will generally OPPOSE stock option plans that have option exercise prices below the marketplace on the day of the grant. The Fund advisor will generally SUPPORT options programs for outside directors subject to the same constraints previously described. 5. EMPLOYEE STOCK OWNERSHIP PLAN (ESOPS) The Fund advisor will SUPPORT ESOPs created to promote active employee ownership. However, they will OPPOSE any ESOP whose purpose is to prevent a corporate takeover. 6. PAY EQUITY The Fund advisor will SUPPORT shareholder resolutions that request that management provide a race and/or gender pay equity report. 7. RATIO BETWEEN CEO AND WORKER PAY The Fund advisor will generally SUPPORT shareholder resolutions requesting that management report on the ratio between CEO and employee compensation. 8. MAXIMUM RATIO BETWEEN CEO AND WORKER COMPENSATION AND/OR CAP ON CEO COMPENSATION The Fund advisor will vote on a case-by-case basis shareholder resolutions requesting management to set a maximum ratio between CEO and employee compensation and/or a cap on CEO compensation. 9. CHANGES TO CHARTER OR BY-LAWS The Fund advisor will conduct a case-by-case review of the proposed changes with the voting decision resting on whether the proposed changes are in shareholder's best interests. 10. CONFIDENTIAL VOTING Typically, proxy voting differs from voting in political elections in that the company is made aware of shareholder votes as they are cast. This enables management to contact dissenting shareholders in an attempt to get them to change their votes. The Fund advisor will SUPPORT confidential voting because the voting process should be free of coercion. 11. EQUAL ACCESS TO PROXY 5 Equal access proposals ask companies to give shareholders access to proxy materials to state their views on contested issues, including director nominations. In some cases, they would actually allow shareholders to nominate directors. Companies suggest that such proposals would make an increasingly complex process even more burdensome. In general, the Fund advisor will OPPOSE resolutions for equal access proposals. 12. GOLDEN PARACHUTES Golden parachutes are severance payments to top executives who are terminated or demoted pursuant to a takeover. Companies argue that such provisions are necessary to keep executives from "jumping ship" during potential takeover attempts. The Fund advisor will SUPPORT the right of shareholders to vote on golden parachutes because they go above and beyond ordinary compensation practices. In evaluating a particular golden parachute, we will examine total management compensation, the employees covered by the plan, and the quality of management. C. MERGERS AND ACQUISITIONS 1. CONSIDERING THE NON-FINANCIAL EFFECTS OF A MERGER PROPOSAL Such a proposal allows or requires the Board to consider the impact of merger decisions on various "stakeholders," such as employees, communities, customers and business partners. This proposal gives the Board the right to reject a tender offer on the grounds that it would adversely affect the company's stakeholders. The Fund advisor will SUPPORT shareholder resolutions that consider non-financial impacts of mergers. 2. MERGERS, RESTRUCTURING AND SPIN-OFFS A merger, restructuring, or spin-off in some way affects a change in control of the company's assets. In evaluating the merit of each issue, we will consider the terms of each proposal. This will include an analysis of the potential long-term value of the investment. The Fund advisor will SUPPORT management proposals for merger or restructuring if the transaction appears to offer fair value and other proxy voting policies stated are not violated. For example, the advisor may oppose restructuring resolution which include in it significant takeover defenses and may again oppose the merger of a non-nuclear and a nuclear utility if it poses potential liabilities. 3. POISON PILLS Poison pills (or shareholder rights plans) are triggered by an unwanted takeover attempt and cause a variety of events to occur which may make the company financially less attractive to the suitor. Typically, directors have enacted these plans without shareholder approval. Most poison pill resolutions deal with putting poison pills up for a vote or repealing them altogether. The Fund advisor will SUPPORT proposals to put rights plans up for a shareholder vote. In general, poison pills will be OPPOSED unless management is able to present a convincing case fur such a plan. 4. OPT-OUT OF STATE ANTI-TAKEOVER LAW 6 A strategy for dealing with anti-takeover issues has been a shareholder resolution asking for a company to opt-out of a particular state's anti-takeover laws. The Fund advisor will generally SUPPORT bylaws changes requiring a company to opt-out of state anti-takeover laws. However, resolutions requiring companies to opt-into state anti-takeover statutes will be OPPOSED. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable to closed-end funds without a fiscal year ending on or after December 31, 2005. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASES.
(d) (c) MAXIMUM NUMBER (OR TOTAL NUMBER OF APPROXIMATE DOLLAR PERIOD (a) (b) SHARES (OR UNITS) VALUE) OF SHARES (OR TOTAL NUMBER OF AVERAGE PRICE PAID PURCHASED AS PART OF UNITS) THAT MAY YET SHARES (OR UNITS) PER SHARE (OR UNIT) PUBLICLY ANNOUNCED BE PURCHASED UNDER PURCHASED PLANS OR PROGRAMS THE PLANS OR PROGRAMS - ---------------------------------------------------------------------------------------------------------------------- 08/01/04 to 08/31/04 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- 09/01/04 to 09/30/04 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- 10/01/04 to 10/31/04 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- 11/01/04 to 11/30/04 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- 12/01/04 to 12/31/04 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- 01/01/05 to 01/31/05 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------- Total 0 0 0 0 - ----------------------------------------------------------------------------------------------------------------------
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------- The registrant's independent directors/trustees serve as its nominating committee, however they do not make use of a nominating committee charter. ITEM 11. CONTROLS AND PROCEDURES. (a) The Registrant's President and Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "1940 Act")) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 15d-15(b) under the Securities Exchange Act of 1934, as amended. (b) There were no significant changes in the Registrant's internal controls over financial reporting that occurred during the Registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. 7 ITEM 12. EXHIBITS. (a) (1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith. (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. None. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The Mexico Equity and Income Fund, Inc. --------------------------------------------------------- By (Signature and Title) /s/ Maria Eugenia Pichardo ---------------------------------------------- Maria Eugenia Pichardo, President Date April 8, 2005 ----------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Maria Eugenia Pichardo --------------------------------------------- Maria Eugenia Pichardo, President Date April 8, 2005 ----------------------------------------------------------------- By (Signature and Title) /s/ Gerald Hellerman --------------------------------------------- Gerald Hellerman, Chief Financial Officer Date April 8, 2005 ----------------------------------------------------------------- 9 EX-99.302CERT 2 c93331exv99w302cert.txt CERTIFICATION EX.99.302 CERT CERTIFICATIONS I, Maria Eugenia Pichardo, certify that: 1. I have reviewed this report on Form N-CSR of The Mexico Equity and Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omit]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 8, 2005 /s/ Maria Eugenia Pichardo ------------------------- --------------------------------- Maria Eugenia Pichardo President CERTIFICATIONS I, Gerald Hellerman, certify that: 1. I have reviewed this report on Form N-CSR of The Mexico Equity and Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Omit]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 8, 2005 /s/ Gerald Hellerman ------------- ---------------------------------- Gerald Hellerman Chief Financial Officer EX-99.906CERT 3 c93331exv99w906cert.txt CERTIFICATION EX.99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the The Mexico Equity and Income Fund, Inc., does hereby certify, to such officer's knowledge, that the report on Form N-CSR of the The Mexico Equity and Income Fund, Inc. for the period ended January 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the The Mexico Equity and Income Fund, Inc. for the stated period. /s/ Maria Eugenia Pichardo /s/ Gerald Hellerman - --------------------------------------- --------------------------------------- Maria Eugenia Pichardo Gerald Hellerman President Chief Financial Officer The Mexico Equity and Income Fund, Inc. The Mexico Equity and Income Fund, Inc. Dated: April 8, 2005 Dated: April 8, 2005 -------------------------------- -------------------------------- This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by The Mexico Equity and Income Fund, Inc. for purposes of the Securities Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----