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.
615 EAST MICHIGAN STREET
MILWAUKEE, WI 53202
(Address of principal executive offices) (Zip code)
MR. GERALD HELLERMAN
C/O U.S. BANCORP FUND SERVICES, LLC
615 EAST 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, 2004
Date of reporting period: AUGUST 1, 2003 TO JULY 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Mexico Equity and Income Fund, Inc.
September 27, 2004
DEAR FUND SHAREHOLDER,
We are pleased to present you with the audited financial statements of the
Mexico Equity and Income Fund, Inc. (the "Fund") for the fiscal year ended July
31, 2004. 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 $33,779,149 on July 31, 2004, as compared to
$25,104,015 on July 31, 2003, which represents an increase of 34.56% in the
value of the Fund's net assets. From July 31, 2003 to July 31, 2004 the Fund's
Net Asset Value ("NAV") per share increased 34.77% (including reinvested
dividends). For the same period, the Bolsa IPC Index, which is a measure of the
market performance of Mexican securities, increased 28.98% (including reinvested
dividends).
As we have reported previously, your Board of Directors is focused on action to
control the discount at which the Fund's shares trade. To this end, we continue
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 to receive NAV from time to time, if they decide
to sell their shares. We are hopeful that this process will be concluded before
the end of this year. However, there can be no assurance when (or if) such
approvals will be obtained. We will continue to keep you informed on 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, which continues to be too high.
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/ Gerald Hellerman
Gerald Hellerman
President
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2
THE MEXICO EQUITY AND INCOME FUND, INC.
Report of the Investment Adviser
FOR THE YEAR ENDED JULY 31, 2004
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 fiscal year ended July
31, 2004.
--------------------------------------------------------------------------------
MEXICO'S ECONOMY: REVIEW AND OUTLOOK
Mexico's macro fundamentals remain solid, with tight fiscal and monetary
discipline. Record high international reserves, ongoing growth in exports and
the positive effect on the current account of higher-than-expected oil prices,
as well as interest rates and CPI figure reductions in recent years (in both
real and nominal terms) are a solid and important economic platform for
consistent annual economic growth rates of between 5-7% upon the approval of
additional fiscal and energy structural reforms.
Banco de Mexico's successful monetary policy is reflected in a 28-day Cetes
(Mexican Treasury Bill) rate of 7.10% currently and an annual CPI rate of 4.49%
through July 31, 2004 compared with interest rate levels of 32% in 1998 and 16%
in 2000 when annual inflation rates were 18% and 9% for the same two years,
respectively.
The unemployment rate and higher economic growth rates are the two lagging
elements of Mexico's successful macroeconomic model. A decrease in productivity
gains constitutes the latent challenge for President Fox's administration.
Long-awaited fiscal, labor and energy reforms that would boost Mexico's
competitiveness and favor long-term investments, were not forthcoming during the
fiscal year.
Banco de Mexico published its survey of private analysts with the following
projections for the remainder of 2004: (i) CPI estimates rose to 4.33% from
4.08% in June, (ii) expectations for year-end 28-day Cetes rose to 7.35% from
7.14% in June, (iii) the Mexican Peso is expected to close the year at MXP$11.56
against the U.S. Dollar, and (iv) GDP growth is now forecasted to be 4.09% vs.
3.93% in June.
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 year ended July 31, 2004, the Mexico Bolsa IPC Index (the "Bolsa")
gained 27.7% (simple price appreciation), marked by two distinct periods:
1. From August 2003 to March 2004, the Bolsa gained 35.5% underpinned by
low interest rates, an upturn in the global commodities cycle, and
confirmation of an economic recovery, and
2. From April 2004 to July 2004 the Bolsa lost -5.7% with a sharp bout of
volatility due to higher international oil prices and the beginning of a
rising interest rate cycle.
In general, outperforming sectors for the fiscal year were: mining (copper),
wireless telephonics, construction (housing development), and industrial
conglomerates (steel). Beverages, fixed-line telephonics and consumer staples
were the biggest underperforming sectors.
The Bolsa ranked fifth in the Latin American regions, trailing the Brazil
Bovespa Index's return of 61.3%, Peru Lima General Index's return of 55.1%,
Columbia IGBC General Index's return of 52.6% and the Venezuelan Indice Bursatil
de Caracas' return of 51.9%. By comparison, for the year ended July 31, 2004,
the Dow Jones gained 9.8% and the Nasdaq Composite Index gained 8.8%.
Second quarter 2004 corporate results were better than expected with an EBITDA
growth rate of 20% versus the previous calendar year.
At the end of the Fund's fiscal year, the Bolsa was trading at 7.4x its 12 month
trailing EV/EBITDA (Enterprise Value/Earnings before Interest, Taxes,
Depreciation and Amortization), which is in line with its three-year average and
at a 6% premium to its one-year average.
--------------------------------------------------------------------------------
THE FUND'S PERFORMANCE
For the year ended July 31, 2004, the Fund's Net Asset Value ("NAV") gained
34.8%, outperforming the Bolsa's gain of 29% and The Mexico Fund (MXF), whose
NAV increased 34.3% during the same period (both returns include reinvested
dividends).
For the ten-year period ended July 31, 2004, the Fund's cumulative NAV return
was 62.6%, the MXF's cumulative NAV return was 7.7% and the Bolsa's cumulative
return was 38.3% (including reinvested dividends). Return calculations are
according to Bloomberg. The Bolsa is an equity-only index while the Mexico
Equity and Income Fund Inc. invests in equity and fixed-income instruments. For
the fiscal year ended July 31, 2004, the Fund's common share market price gained
4
THE MEXICO EQUITY AND INCOME FUND, INC.
29.1% (including reinvested dividends). Thus, for the fiscal year ended July 31,
2004 the Fund continued to achieve one of the best returns compared to its
peers. The Fund's common shares ended July at a 14.1% discount to NAV, 384 basis
points greater than at July of 2003.
--------------------------------------------------------------------------------
PORTFOLIO STRATEGY
The Fund's investment strategy included a mix of investments with an allocation
of 91% in stocks and 9% in other investments for the fiscal year ended July 31,
2004. We believe that the Fund outperformed the Bolsa primarily as the result of
a consistent strategy that included stocks classified in the
undervalued-restructuring stories asset category in the Portfolio, which turned
out to be the largest contributor to the Fund's performance for the period.
The three main asset categories that prevailed in the Fund throughout the fiscal
period were:
(i) strong market positions, (ii) undervalued-restructuring stories, and
(iii) fast-growing business segments. The asset classification methodology
was established in 2001, and includes three additional asset categories:
(i) financial institutions, (ii) global leaders and (iii) globally
consolidated industries.
During the fiscal year 2004, the fixed income allocation averaged approximately
6% on a monthly basis, the lowest allocation compared to 17% in 2003, 11% in
2002, and 9% in 2001.
--------------------------------------------------------------------------------
CONCLUSION AND OUTLOOK
Solid monetary and fiscal discipline has helped to maintain Mexico's country
risk within an approximate range of 220 to184 basis points, the lowest level in
15 years. In the long term, the failure to approve long-awaited structural
reforms could jeopardize the country's competitiveness. Strong second quarter
2004 financial reports improved the Bolsa's EV/EBITDA multiple to 6.8x from
7.7x. We believe that higher international oil prices and geopolitical issues
limited the Bolsa's upside.
We will continue to implement a prudent investment strategy that includes
fixed-income investments and equity allocations with a focus on: (i)
internationally competitive Mexican Blue Chip companies which are characterized
by high market share, quality management, and strong balance sheets, (ii)
undervalued stocks which are in special situations, but have solid management
and strong products and (iii) small capitalization stocks with strong EBITDA
growth, with a positive outlook that stand to benefit the Fund in the long term.
5
THE MEXICO EQUITY AND INCOME FUND, INC.
On the political front, Mr. Andres Manuel Lopez Obrador, Mexico City's mayor and
a strong left-wing candidate for the July 2006 presidential seat, could possibly
be stripped of his political immunity. If this were to happen, it could be a
source of political turmoil in the months to come.
We will continue to adhere to our investment strategy illustrated by the
following two investment principles: consistency and strong risk-control
measures to avoid excessive exposure to uncertainties.
Sincerely yours,
/s/ EUGENIA PICHARDO
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 ANNUAL REPORT FOR MORE COMPLETE FUND
INFORMATION.
THE INFORMATION CONCERNING THE FUND INCLUDED IN THE REPORT OF THE INVESTMENT
ADVISER CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS ABOUT THE FACTORS THAT MAY
AFFECT THE PERFORMANCE OF THE FUND IN THE FUTURE. THESE STATEMENTS ARE BASED ON
FUND MANAGEMENT'S PREDICTIONS AND EXPECTATIONS CONCERNING CERTAIN FUTURE EVENTS
AND THEIR EXPECTED IMPACT ON THE FUND, SUCH AS PERFORMANCE OF THE ECONOMY AS A
WHOLE AND OF SPECIFIC INDUSTRY SECTORS, CHANGES IN THE LEVELS OF INTEREST RATES,
THE IMPACT OF DEVELOPING WORLD EVENTS, AND OTHER FACTORS THAT MAY INFLUENCE THE
FUTURE PERFORMANCE OF THE FUND. MANAGEMENT BELIEVES THESE FORWARD-LOOKING
STATEMENTS TO BE REASONABLE, ALTHOUGH THEY ARE INHERENTLY UNCERTAIN AND
DIFFICULT TO PREDICT. ACTUAL EVENTS MAY CAUSE ADJUSTMENTS IN PORTFOLIO
MANAGEMENT STRATEGIES FROM THOSE CURRENTLY EXPECTED TO BE EMPLOYED.
6
THE MEXICO EQUITY AND INCOME FUND, INC.
Allocation of Portfolio Assets
(CALCULATED AS A PERCENTAGE OF NET ASSETS) July 31, 2004
(BAR CHART)
ALLOCATION OF PORTFOLIO ASSETS
------------------------------
Communications 21.92
Construction 14.49
Food, Beverage and Tobacco 12.41
Retailing 11.07
Mining 9.39
Industrial Conglomerates 6.51
Media 5.88
Cement 4.75
Corporate Bonds 4.62
Financial Groups 2.91
Specialty Stores 1.32
Investment Companies 0.81
Structured Equity Note 0.13
See Notes to the Financial Statements.
7
THE MEXICO EQUITY AND INCOME FUND, INC.
Schedule of Investments JULY 31, 2004
MEXICO - 93.84% SHARES VALUE
----------------------------------------------------------------------------------------------
COMMON STOCKS - 90.65%
----------------------------------------------------------------------------------------------
COMMUNICATIONS - 21.92%
America Movil, S.A. de C.V. - Class L...................... 968,200 $ 1,731,292
America Movil, S.A. de C.V. - Class L ADR.................. 42,300 1,511,379
Telefonos de Mexico, S.A. de C.V. - Class L................ 2,112,500 3,268,508
Telefonos de Mexico, S.A. de C.V. - Class L ADR............ 28,952 894,038
-----------
7,405,217
-----------
CEMENT - 4.75%
Cemex, S.A. de C.V. CPO.................................... 208,742 1,179,226
Grupo Cementos de Chihuahua, S.A. de C.V................... 270,900 427,212
-----------
1,606,438
-----------
CONSTRUCTION - 14.49%
Desarrolladora Homex S.A. de C.V*.......................... 60,000 178,728
Empresas ICA Sociedad Controladora, S.A. de C.V.*.......... 4,192,000 1,230,349
SARE Holding, S.A. de C.V. - Class B*...................... 3,451,100 1,947,178
Urbi, Desarrollos Urbanos, S.A. de C.V.*................... 445,600 1,538,167
-----------
4,894,422
-----------
FINANCIAL GROUPS - 2.91%
Grupo Financiero Banorte, S.A. de C.V. - Class O........... 267,200 983,214
-----------
FOOD, BEVERAGE AND TOBACCO - 12.41%
Alsea, S.A. de C.V......................................... 646,900 1,014,501
Fomento Economico Mexicano, S.A. de C.V. ADR............... 4,550 199,927
Fomento Economico Mexicano, S.A. de C.V. UBD............... 282,800 1,241,059
Gruma S.A. - Class B....................................... 128,500 218,858
Grupo Embotelladoras Unidas, S.A. de C.V. - Class B........ 414,400 1,316,103
Grupo Modelo, S.A. de C.V. - Class C....................... 81,000 200,477
-----------
4,190,925
-----------
See Notes to the Financial Statements.
8
Schedule of Investments (continued)
JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
COMMON STOCKS (CONTINUED) SHARES VALUE
----------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 6.51%
Alfa, S.A. - Class A....................................... 338,600 $ 1,122,536
Hylsamex, S.A. de C.V. CPO*................................ 293,900 435,417
Hylsamex, S.A. de C.V. - Class L*.......................... 104,479 152,773
Industrias CH, S.A. - Class B*............................. 25,900 154,302
Vitro, S.A. de C.V. - Class A.............................. 360,800 332,540
-----------
2,197,568
-----------
MEDIA - 5.88%
Grupo Televisa, S.A. ADR................................... 13,000 611,000
Grupo Televisa, S.A. CPO................................... 219,200 513,144
TV Azteca, S.A. de C.V. CPO*............................... 1,572,700 862,546
-----------
1,986,690
-----------
MINING - 9.39%
Grupo Mexico, S.A. de C.V. - Class B*...................... 902,100 3,023,862
Industrias Penoles, S.A. de C.V............................ 40,600 148,257
-----------
3,172,119
-----------
RETAILING - 11.07%
Grupo Elektra, S.A. de C.V................................. 272,900 1,617,938
Wal-Mart de Mexico, S.A. de C.V. - Class V................. 697,084 2,119,834
-----------
3,737,772
-----------
SPECIALTY STORES - 1.32%
Corporativo Fragua, S.A. - Class B......................... 173,100 447,081
-----------
TOTAL COMMON STOCKS (Cost $28,531,385)..................... 30,621,446
-----------
CORPORATE BONDS - 2.31% TITLES
----------------------------------------------------------------------------------------------
Hylsamex, S.A. de C.V., 8.7500%, 03/08/2009+............... 14,015 390,789
Hylsamex, S.A. de C.V., 8.7500%, 09/08/2009+............... 14,015 390,789
-----------
TOTAL CORPORATE BONDS (Cost $773,545)...................... 781,578
-----------
See Notes to the Financial Statements.
9
Schedule of Investments (continued)
JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
INVESTMENT COMPANIES - 0.75% SHARES VALUE
----------------------------------------------------------------------------------------------
GBM Fondo Corporativo de Liquidez Inmediata, S.A. de C.V.
SIID para Personas Morales - Class B*.................... 1,413,325 $ 192,806
The Mexico Fund............................................ 3,100 60,295
-----------
TOTAL INVESTMENT COMPANIES (Cost $249,178)................. 253,101
-----------
STRUCTURED EQUITY NOTE - 0.13% TITLES
----------------------------------------------------------------------------------------------
Mexico Bolsa IPC Index* (Cost $44,271)+.................... 50 43,422
-----------
TOTAL MEXICO (Cost $29,598,379)............................ 31,699,547
-----------
PRINCIPAL
UNITED STATES - 2.37% AMOUNT
----------------------------------------------------------------------------------------------
CORPORATE BOND - 2.31%
----------------------------------------------------------------------------------------------
Monterrey Power, S.A. de C.V., 9.6250%, 11/15/2009(Cost
$723,059)................................................ $ 675,000 $ 779,528
-----------
INVESTMENT COMPANY - 0.06% SHARES
----------------------------------------------------------------------------------------------
First American Treasury Obligations Fund - Class A (Cost
$19,798)................................................. 19,798 19,798
-----------
TOTAL UNITED STATES (Cost $742,857)........................ 799,326
-----------
TOTAL INVESTMENTS (COST $30,341,236) - 96.21%.............. 32,498,873
OTHER ASSETS IN EXCESS OF LIABILITIES - 3.79%.............. 1,280,276
-----------
TOTAL NET ASSETS - 100.00%................................. $33,779,149
===========
FOOTNOTES AND ABBREVIATIONS
* - Non-income producing security.
ADR - American Depository Receipts.
+ - Fair Valued Security.
See Notes to the Financial Statements.
10
THE MEXICO EQUITY AND INCOME FUND, INC.
Statement of Assets and Liabilities JULY 31, 2004
ASSETS
Investments, at value (Cost $30,341,236).................... $32,498,873
Foreign currency holdings (Cost $45,374).................... 45,637
Receivables:
Investments sold.......................................... 1,825,588
Interest.................................................. 13,819
Prepaid expenses............................................ 11,812
-----------
TOTAL ASSETS.............................. 34,395,729
-----------
LIABILITIES
Payable for securities purchased............................ 484,355
Advisory fees payable....................................... 22,414
Directors' fees payable..................................... 15,299
Administration fee payable.................................. 8,357
Fund accounting fees payable................................ 8,181
Custody fees payable........................................ 4,986
Accrued expenses............................................ 72,988
-----------
TOTAL LIABILITIES......................... 616,580
-----------
NET ASSETS................................ $33,779,149
===========
NET ASSET VALUE PER SHARE
($33,779,149/2,473,504)................ $ 13.66
===========
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............................................. 34,512,533
Accumulated net realized loss on investments and foreign
currency.................................................. (2,893,758)
Net unrealized appreciation on investments and foreign
currency.................................................. 2,157,900
-----------
NET ASSETS................................ $33,779,149
===========
See Notes to the Financial Statements.
11
THE MEXICO EQUITY AND INCOME FUND, INC.
Statement of Operations FOR THE YEAR ENDED
JULY 31, 2004
INVESTMENT INCOME
Dividends................................................................. $ 529,446
Interest (Net of foreign taxes withheld of $12)........................... 64,884
----------
TOTAL INVESTMENT INCOME................................. 594,330
----------
EXPENSES
Advisory fees............................................... $245,496
Legal fees.................................................. 88,956
Administration fees......................................... 52,904
Fund accounting fees........................................ 45,750
Directors' fees and expenses................................ 42,806
Insurance expense........................................... 39,049
Reports to shareholders..................................... 30,047
Custodian fees.............................................. 28,764
NYSE fees................................................... 22,810
Audit fees.................................................. 20,385
Shareholder servicing fees.................................. 15,890
Other expenses.............................................. 6,017
--------
TOTAL EXPENSES.......................................... 638,874
LESS, EXPENSE REIMBURSEMENT BY ADVISER.................. (3,008)
----------
NET EXPENSES............................................ 635,866
----------
NET INVESTMENT LOSS..................................... (41,536)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments and foreign currency transactions...... 9,589,282
Net change in unrealized appreciation from investments and foreign
currency transactions................................................... (834,386)
----------
Net gain from investments and foreign currency transactions............... 8,754,896
----------
Net increase in net assets resulting from operations...................... $8,713,360
==========
See Notes to the Financial Statements.
12
THE MEXICO EQUITY AND INCOME FUND, INC.
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JULY 31, 2004 JULY 31, 2003
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss).............................. $ (41,536) $ 9,542
Net realized gain (loss) on investments and foreign
currency transactions................................... 9,589,282 (2,817,619)
Net change in unrealized appreciation (depreciation) in
value of investments and foreign currency
transactions............................................ (834,386) 6,283,561
----------- -----------
Net increase in net assets resulting from operations.... 8,713,360 3,475,484
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income..................................... (38,226) --
Net realized gains........................................ -- --
Return of capital......................................... -- --
----------- -----------
Decrease in net assets from distributions............... (38,226) --
----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares repurchased under Tender Offer..................... -- --
----------- -----------
Decrease in net assets from capital share transactions.... -- --
----------- -----------
Total increase in net assets.............................. 8,675,134 3,475,484
NET ASSETS
Beginning of year......................................... 25,104,015 21,628,531
----------- -----------
End of year*.............................................. $33,779,149 $25,104,015
=========== ===========
*Including undistributed net investment income of: ..... $ -- $ 16,325
----------- -----------
See Notes to the Financial Statements.
13
THE MEXICO EQUITY AND INCOME FUND, INC.
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
JULY 31, 2004 JULY 31, 2003 JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------- ------------- ------------- ------------- -------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of year.................. $ 10.15 $ 8.74 $ 10.19 $ 11.36 $ 8.64
------- -------- -------- -------- ---------
Net investment income
(loss)................... (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.... 3.55 1.41 (1.42) (0.64) 2.62
------- -------- -------- -------- ---------
Net increase (decrease)
from investment
operations............... 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
year..................... $ 13.66 $ 10.15 $ 8.74 $ 10.19 $ 11.36
======= ======== ======== ======== =========
Per share market value, end
of year.................. $ 11.73 $ 9.10 $ 7.95 $ 9.11 $ 10.69
TOTAL INVESTMENT RETURN
BASED ON MARKET VALUE,
END OF YEAR*............. 29.10% 14.47% (12.73)% (8.64)% 53.36%
See Notes to the Financial Statements.
14
THE MEXICO EQUITY AND INCOME FUND, INC.
Financial Highlights (concluded)
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
JULY 31, 2004 JULY 31, 2003 JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------- ------------- ------------- ------------- -------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
000s)..................... $ 33,779 $ 25,104 $ 21,629 $ 87,620 $114,112
Ratios of expenses to
average net assets:
Before expense
reimbursement.......... 2.09% 2.64% 1.81% 1.90% 2.03%
After expense
reimbursement.......... 2.08% 2.62% 1.81% 1.90% 2.03%
Ratios of net investment
income (loss) to average
net assets:
Before expense
reimbursement.......... (0.15)% 0.02% (0.14)% (0.16)% 0.27%
After expense
reimbursement.......... (0.14)% 0.04% (0.14)% (0.16)% 0.27%
Portfolio turnover.......... 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 return
does not reflect brokerage commissions.
(1) Net investment income 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.
See Notes to the Financial Statements.
15
THE MEXICO EQUITY AND INCOME FUND, INC.
Notes to Financial Statements JULY 31, 2004
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. At July
31, 2004, the Fund held three such securities which represented 2.44% of the
Fund's net assets.
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.
16
Notes to Financial Statements (continued)
JULY 31, 2004
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.
In accordance with U.S. Treasury regulations, the Fund utilized $1,069,636 of
capital losses and $21,901 of Post-October currency losses arising after October
31, 2002. Such losses are treated for tax purposes as arising on August 1, 2003.
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,
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.
17
Notes to Financial Statements (continued)
JULY 31, 2004
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
permanent in nature. To the extent these differences are permanent in nature,
such amounts are
18
Notes to Financial Statements (continued)
JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
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 years ended July 31, 2004 and July 31, 2003 were as
follows:
DISTRIBUTIONS PAID FROM: 7/31/04 7/31/03
------------------------ ------- -------
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)................ $30,523,611
-----------
Gross tax unrealized appreciation........................... 2,887,361
Gross tax unrealized depreciation........................... (866,462)
-----------
Net tax unrealized appreciation............................. $ 2,020,899
===========
Undistributed ordinary income............................... $ --
Undistributed long-term capital gain........................ --
-----------
Total distributable earnings................................ $ --
===========
Other accumulated losses.................................... $(2,756,757)
-----------
Total accumulated earnings.................................. $ (735,858)
===========
(a) Represents cost for federal income tax purposes. Differences between the
Fund's cost basis of investments and foreign currency at July 31, 2004, for
book and tax purposes, relate primarily to the deferral of losses related to
wash sales.
The Mexico Equity and Income Fund designates 100% of dividends declared after
July 31, 2003 from net investment income as qualified dividend income under the
Jobs and Growth Tax Relief Reconciliation Act of 2003 (unaudited).
19
Notes to Financial Statements (continued)
JULY 31, 2004
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 year ended July 31, 2004,
these fees amounted to $245,496. 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 year ended July
31, 2004, the total expense reimbursements made by the Investment Adviser
amounted to $3,008.
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 in person
and $100 for each special telephonic meeting attended. At the Board of
Directors' meeting held on December 13, 2001, Mr. Gerald Hellerman was appointed
President of the Fund. For serving the Fund as President, in addition to the
aforementioned Directors' fees, Mr. Hellerman receives annual compensation in
the amount of $6,000. 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
20
Notes to Financial Statements (continued)
JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
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 year ended July 31, 2004, the Mexico Equity and Income Fund, Inc.
incurred Administration fees of $52,904, Fund Accounting fees of $45,750 and
Custody fees of $28,764.
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
$70,572,396 and $71,714,585 respectively, for the year ended July 31, 2004.
At July 31, 2004 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
At a meeting of the Board of Directors held on December 13, 2001, the Board of
Directors approved a tender offer (the "Tender").
The Tender allowed the Fund to purchase up to 100% of each shareholder's shares
of common stock, not to exceed 80% of the total outstanding shares of common
stock of the Fund, for cash at a price equal to 100% of the Fund's net asset
value per share as of the closing date. The Tender commenced on February 19,
2002 and expired on March 20, 2002. In connection with the Tender, the Fund
purchased 6,122,069 shares of capital stock at a total cost of $68,444,728.
There were no gains or losses to the Fund because the repurchase of tendered
shares was executed at 100% of the Fund's NAV as calculated on the expiration
date.
At a special meeting of the Board of Directors held on October 11, 1999, the
Board of Directors approved a share repurchase program. Pursuant to the share
repurchase program, the Fund was
21
Notes to Financial Statements (continued)
JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
authorized to commence a two phase share repurchase program for up to 2,800,000
shares, or approximately 25% of the Fund's then outstanding shares of common
stock, through a combination of share purchases and tender offers.
During 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%.
22
THE MEXICO EQUITY AND INCOME FUND, INC.
Report of Independent Registered Public Accounting Firm
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
MEXICO EQUITY AND INCOME FUND, INC.
MILWAUKEE, WISCONSIN
We have audited the accompanying statement of assets and liabilities of Mexico
Equity and Income Fund, Inc. (the "Fund"), including the schedule of
investments, as of July 31, 2004, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. For years prior to August 1, 2001, the financial highlights were audited
by other auditors whose report, dated September 20, 2001, expressed an
unqualified opinion.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mexico
Equity and Income Fund, Inc. as of July 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the three
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
September 17, 2004
23
THE MEXICO EQUITY AND INCOME FUND, INC.
Dividends and Distributions (unaudited) JULY 31, 2004
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
24
Dividends and Distributions (unaudited) (continued) JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
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.
25
Dividends and Distributions (unaudited) (continued) JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
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.
26
THE MEXICO EQUITY AND INCOME FUND, INC.
Results of Annual Stockholders Meeting (unaudited) JULY 31, 2004
The Fund's Annual Stockholders meeting was held on November 19, 2003, at 405
Lexington Avenue, New York, New York 10174. As of October 9, 2003, the record
date, outstanding shares of common stock ("shares") of the Fund were 2,473,504.
Holders of 2,137,626 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
three proposals.
The stockholders approved a new Investment Advisory agreement between Pichardo
Asset Management, S.A. de C.V. and the Fund, elected two Directors to the Board
of Directors and ratified the selection of Tait, Weller & Baker as the Fund's
independent auditor for the fiscal year ending July 31, 2004.
The following table provides information concerning the matters voted on at the
meeting:
I. APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT BETWEEN PICHARDO ASSET
MANAGEMENT, S.A. DE C.V. AND THE FUND
VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES
--------- ------------- --------------- ----------------
2,055,371 49,478 32,777 0
II. ELECTION OF DIRECTORS
NOMINEE VOTES FOR VOTES WITHHELD
------- --------- --------------
Rajeev Das 2,079,469 58,157
Andrew Dakos 2,082,868 54,758
III. RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE FUND'S
INDEPENDENT AUDITOR
VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES
--------- ------------- --------------- ----------------
2,073,339.. 30,379 33,908 0
27
THE MEXICO EQUITY AND INCOME FUND, INC.
Privacy Policy (unaudited) JULY 31, 2004
The Mexico Equity and Income Fund, Inc. (the "Fund") has adopted the following
privacy policy in order to safeguard the personal information of its consumers
and customers in accordance with SEC Regulation S-P, 17 CFR 284.30:
COMMITMENT TO CONSUMER PRIVACY. The Fund recognizes and respects the privacy
expectations of each of our customers and believes that the confidentiality and
protection of consumer information is one of our fundamental responsibilities.
The Fund is committed to maintaining the confidentiality, integrity and security
of the customers' personal information and will handle personal consumer and
customer information only in accordance with Regulation S-P and any other
applicable laws, rules and regulations. The Fund will ensure: (a) the security
and confidentiality of customer records and information; (b) that customer
records and information are protected from any anticipated threats and hazards;
and (c) that unauthorized access to, or use of, customer records or information
is protected against.
COLLECTION AND DISCLOSURE OF SHAREHOLDER INFORMATION. Consumer information
collected by, or on behalf of, The Fund, generally consists of the following:
- Information received from consumers or customers on or in applications or
other forms, correspondence, or conversations, including, but not limited
to, their name, address, phone number, social security number, assets,
income and date of birth; and
- Information about transactions with us, our affiliates, or others,
including, but not limited to, shareholder account numbers and balance,
payments history, parties to transactions, cost basis information, and
other financial information.
The Fund does not disclose any nonpublic personal information about our current
or former consumers or customers to nonaffiliated third parties, except as
permitted by law. For example, as The Fund has no employees, it conducts its
business affairs through third parties that provide services pursuant to
agreements with The Fund (as well as through its officers and directors).
SECURITY OF CONSUMER AND CUSTOMER INFORMATION. The Fund will determine whether
the policies and procedures of its affiliates and service providers and
reasonably designed to safeguard customer information and require only
appropriate and authorized access to, and use of, customer information through
the application of appropriate administrative, technical, physical, and
procedural safeguards that comply with applicable federal standards and
regulations. The Fund directs each of its service providers to adhere to The
Fund's privacy policy and to their respective privacy policies with respect to
all customer information of The Fund and to take all actions reasonably
necessary so that The Fund is in compliance with the provisions of 17 CFR
248.30, including, as applicable, the
28
Privacy Policy (unaudited) (continued) JULY 31, 2004
THE MEXICO EQUITY AND INCOME FUND, INC.
development and delivery of initial and annual privacy notices and maintenance
of appropriate and adequate records. The Fund will require its service providers
to confirm to The Fund, in writing,that they are restricting access to nonpublic
personal information about customers to those employees who need to know that
information to provide products or services to customers.
The Fund requires its service providers to provide periodic reports, no less
frequently than annually, to the Board of Directors outlining their privacy
policies and implementation and promptly report to The Fund any material changes
to their privacy policy before, or promptly after, their adoption.
29
THE MEXICO EQUITY AND INCOME FUND, INC.
Management of the Fund (unaudited) JULY 31, 2004
BOARD OF DIRECTORS. The management and affairs of the Fund are supervised by
the Board of Directors. The Board consists of five individuals, all of whom are
not "interested persons" of the Fund as the term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The Directors are fiduciaries
for the Fund's shareholders and are governed by the laws of the State of
Maryland in this regard. The Board establishes policies for the operation of the
Fund and appoints the officers who conduct the daily business of the Fund. The
Directors and Interested Officers of the Fund are listed below with their
addresses, present position(s) with the Fund, length of time served, principal
occupations over at least the last five years, and any other Directorships held.
Please note that there is only one fund in the complex that is overseen by the
Directors.
TERM OF
YEAR POSITION(S) OFFICE/LENGTH PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND ADDRESS BORN WITH THE FUND OF TIME SERVED DURING THE PAST FIVE YEARS HELD BY DIRECTOR
---------------------- ---- ------------- -------------------- -------------------------- -----------------------
Gerald Hellerman...... 1937 Director, 2004 / 3 years Managing Director, Director, Frank's
10965 Eight Bells Lane President, Hellerman Associates Nursery & Crafts, Inc.;
Columbia, MD 21044 CEO and CFO Director, Innovative
Clinical Solutions,
Ltd.; Director, MVC
Capital, Inc.;
Director, Brantley
Capital Corporation
Phillip Goldstein..... 1945 Director 2005 / 4 years President, Kimball & Director, Brantley
60 Heritage Drive Winthrop, Inc.; and Capital Corporation
Pleasantville, NY general partner of
10570 Opportunity Partners,
L.P.; Managing Member of
the general partner of
Full Value Partners, L.P.
Glenn Goodstein....... 1963 Director 2005 / 3 years Registered Investment Director, The Italy
4243 Mooncrest Place Advisor; held numerous Fund, Inc.
Encino, CA 91436 executive positions with
Automatic Data Processing
until 1996.
Rajeev Das............ 1968 Director 2006 / 3 years Senior analyst, Kimball & None
68 Lafayette Avenue Winthrop, Inc.; prior
Dumont, NJ 07628 Credit Manager, Muriel
Siebett & Company.
Andrew Dakos.......... 1966 Director 2006 / 3 years President and CEO, UVitec None
43 Waterford Drive Printing Ink, Inc.; and
Montville, NJ 07045 Managing Member of the
general partner of Full
Value Partners, L.P.;
President of Elmhurst
Capital, Inc.
30
THE MEXICO EQUITY AND INCOME FUND, INC.
TERM OF
YEAR POSITION(S) OFFICE/LENGTH PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND ADDRESS BORN WITH THE FUND OF TIME SERVED DURING THE PAST FIVE YEARS HELD BY DIRECTOR
---------------------- ---- ------------- -------------------- -------------------------- -----------------------
Andrew Chica.......... 1975 Interested Indefinite / 3 years Compliance Officer and Not Applicable
5324 West Terry Avenue Officer, Assistant Vice President,
Milwaukee, WI 53223 Assistant U.S. Bancorp Fund
Vice Services, LLC
President and
Assistant
Treasurer
Thomas Meller......... 1980 Interested Indefinite / 1 year Compliance Administrator, Not Applicable
933 North Marshall Officer, U.S. Bancorp Fund
Milwaukee, WI 53202 Secretary Services, LLC
31
THE MEXICO EQUITY AND INCOME FUND, INC.
(This page intentionally left blank)
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 REGISTERED PUBLIC ACCOUNTING FIRM:
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 FUND'S PROXY VOTING POLICIES AND PROCEDURES ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST BY CALLING 1-888-294-8217. INFORMATION REGARDING HOW THE FUND VOTED
PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE TWELVE MONTHS ENDED JUNE 30,
2004 IS
AVAILABLE ON THE SEC'S WEBSITE
(at http://www.sec.gov)
AND BY CALLING 1-888-294-8217.
The Mexico Equity
and Income Fund, Inc.
Annual Report
July 31, 2004
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant has
not made any amendments to its code of ethics during the covered period. The
registrant has not granted any waivers from any provisions of the code of ethics
during the covered period. The registrant undertakes to provide to any person
without charge, upon request, a copy of its code of ethics by mail when they
call the registrant at 1-414-765-5307.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors has determined that it does not have an
audit committee financial expert serving on its audit committee. At this time,
the registrant believes that the experience provided by each member of the audit
committee together offers the registrant adequate oversight for the registrant's
level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The registrant has engaged its principal accountant to perform audit services,
audit-related services, tax services and other services during the past two
fiscal years. "Audit services" refer to performing an audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years. "Audit-related services" refer to the assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit. "Tax services" refer to professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning.
"Other services" were not provided by the principal accountant. The following
table details the aggregate fees billed for each of the last two fiscal years
for audit fees, audit-related fees, tax fees and other fees by the principal
accountant.
FYE 7/31/2004 FYE 7/31/2003
------------- -------------
Audit Fees $18,400 $18,000
Audit-Related Fees 0 0
Tax Fees $ 2,100 $ 1,500
All Other Fees 0 0
The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit services of
the registrant, including services provided to any entity affiliated with the
registrant. All of the principal accountant's hours spent on auditing the
registrant's financial statements were attributed to work performed by full-time
permanent employees of the principal accountant.
The following table indicates the non-audit fees billed by the registrant's
accountant for services to the registrant and to the registrant's investment
adviser (and any other controlling entity, etc.--not sub-adviser) for the last
two years. The audit committee of the board of trustees/directors has considered
whether the provision of non-audit services that were
rendered to the registrant's investment adviser is compatible with maintaining
the principal accountant's independence and has concluded that the provision of
such non-audit services by the accountant has not compromised the accountant's
independence.
Non-Audit Related Fees FYE 7/31/2004 FYE 7/31/2003
---------------------- ------------- -------------
Registrant 0 0
Registrant's Investment Adviser 0 0
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.
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.
2
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.
3
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.
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).
4
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
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.
5
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
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.
6
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
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
7
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
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES.
Purchases of Equity Securities by Closed-End Management Investment Company
and Affiliated Purchases 02/01/04-07/31/04
MAXIMUM NUMBER
(OR APPROXIMATE
DOLLAR VALUE) OF
TOTAL NUMBER OF SHARES THAT MAY
SHARES PURCHASED YET BE
AS PART OF PUBLICLY PURCHASED UNDER
TOTAL NUMBER OF AVERAGE PRICE PAID ANNOUNCED PLANS THE PLANS
PERIOD SHARES PURCHASED PER SHARE (OR UNIT) OR PROGRAMS OR PROGRAMS
------ ---------------- ------------------- ------------------ ----------------
02.01.04-02.29.04 0 0 0 0
03.01.04-03.31.04 0 0 0 0
04.01.04-04.30.04 0 0 0 0
8
MAXIMUM NUMBER
(OR APPROXIMATE
DOLLAR VALUE) OF
TOTAL NUMBER OF SHARES THAT MAY
SHARES PURCHASED YET BE
AS PART OF PUBLICLY PURCHASED UNDER
TOTAL NUMBER OF AVERAGE PRICE PAID ANNOUNCED PLANS THE PLANS
PERIOD SHARES PURCHASED PER SHARE (OR UNIT) OR PROGRAMS OR PROGRAMS
------ ---------------- ------------------- ------------------ ----------------
05.01.04-05.31.04 0 0 0 0
06.01.04-06.30.04 0 0 0 0
07.01.04-07.31.04 0 0 0 0
TOTAL 0 0 0 0
ITEM 9. 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 10. CONTROLS AND PROCEDURES.
(a) The Registrant's President/Chief Executive Officer and Treasurer/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 or
in other factors 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.
ITEM 11. EXHIBITS.
(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
9
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/ Gerald Hellerman, President
---------------------------------------------
Gerald Hellerman, President
Date October 7, 2004
---------------------------------------------------------------
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/ Gerald Hellerman, President & Treasurer
-------------------------------------------
Gerald Hellerman, President & Treasurer
Date October 7, 2004
----------------------------------------------------------------
10