Edgar Filing: MEXICO EQUITY & INCOME FUND INC

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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.
COMMON STOCK -- CUSIP 592834105
PREFERRED STOCK -- CUSIP 592834204
AS LISTED ON THE NEW YORK STOCK EXCHANGE
(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, 2006

Date of reporting period: JANUARY 31, 2006

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ITEM 1. REPORT TO STOCKHOLDERS.

The Mexico Equity and Income Fund, Inc.

March 27, 2006

DEAR FELLOW 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 ending
January 31, 2006. The Fund offers investors an opportunity to invest in Mexican
securities. Its objective is to achieve superior long-term performance.

On January 7, 2006, pursuant to a rights offering, the Fund issued 1,429,336
shares of preferred stock at $17.97 per share to shareholders that exercised
their rights, for a total of $25.7 million. Our objective was to permit the Fund
to pay a $4.57 per share distribution without having to sell portfolio
securities. Affiliates of the directors exercised their rights and
oversubscribed, thereby purchasing 110,748 shares of preferred stock.

We have recently been informed that the staff of the SEC's Division of
Investment Management finally intends to provide comments on our innovative Put
Warrant proposal. We initially floated this proposal to the staff more than five
years ago. Who says the SEC moves too slowly on innovation? If implemented, Put
Warrants will be issued to shareholders and would enable them to receive NAV
from time to time by delivering an equal number of shares of common stock and
Put Warrants. In the event the Put Warrant Program is approved by the SEC, all
issued and outstanding shares of our preferred stock will automatically convert
to common stock on a one-to-one basis.

On behalf of the Board of Directors, we thank you for investing in 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

(This page intentionally left blank.)

THE MEXICO EQUITY AND INCOME FUND, INC.

Report of the Investment Adviser

FOR THE SIX MONTHS ENDED JANUARY 31, 2006

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, 2006.

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MEXICO'S ECONOMIC REVIEW

During 2005, Mexico's economy grew 3.0%, with several indicators demonstrating
unprecedented economic solidity. For the fourth consecutive year, the current
administration was able to meet its key economic targets, both in terms of
economic growth and inflation control, with the latter falling to 3.28% (Core
Inflation of 3.08%), the lowest annual rate of inflation since this variable
began being recorded in 1968, while the peso/dollar exchange rate closed the
year at $10.63, gaining 4.6% to the US dollar.

Wholesale and retail figures rose steadily in 2005 and the consumer confidence
index remained high. Meanwhile, the nation's international reserves reached 68.7
billion dollars, an all-time record achieved in part by buoyant exports and high
oil prices, which accounted for 35% of extraordinary income. Total direct
foreign investment last year was between 17 and 18 billion dollars, according to
preliminary figures. Business leaders say this figure could reach 25 billion in
2006, as the rate of economic growth picks up. Key interest rates remain low and
the economy generated more than 750,000 new permanent jobs in 2005.

The budget for 2006 contains no surprises and sets goals of 3.4% growth in GDP
with 3.6% inflation and an $11.30 exchange rate by year end, figures that most
of the analysts surveyed by Bloomberg find feasible.

The major factors influencing the economy this year will be: (i) federal
elections in July, (ii) US economic growth, (iii) the effect that higher
external rates (US, Europe and Japan) might have on domestic interest rates
which for the first time in Mexico's modern economic history have been below 10%
for more than four consecutive years, and (iv) oil prices.

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 common stock and preferred stock are listed on
the New York Stock Exchange under the
ticker symbols MXE and MXEPR, respectively.

THE MEXICO EQUITY AND INCOME FUND, INC.

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THE MEXICAN STOCK EXCHANGE

For the six months ended January 31, 2006, the Mexican Bolsa's IPC Index, "The
Mexbol", gained 33% in dollar terms and its performance was mostly attributable
to:

(i) A benign global economic environment along with healthy contained
inflation that supported capital inflows to emerging markets;

(ii) Mexico's solid macro and financial variables which helped to attract
US$6.7 billion to the Mexican Stock Exchange Market, "The Mexbol", with
US$3.3 billion going into the domestic debt market and US$3.4 billion to
the stock market. (source, Banco de Mexico, Mexico's central bank); and

(iii) Mexican companies' 4Q05 sales, EBITDA (earnings before interest,
taxes, depreciation and amortization) and net income grew 22%, 25% and 55%
respectively, in dollar terms, (source, Santander Investments universe).

For the Fund's semi-annual period, five stocks in the wireless telephony,
fixed-line telecommunications, cement, retail and mining sectors contributed to
80% of the Mexbol's 33% dollar return.

The Mexbol's 2005 10 times trailing last 12-month EV/EBITDA multiple, a
re-rating from 6.6x in 2002, reflects the Mexbol's 183% dollar return from
December 2002 to December 2005.

We remain positive on companies' 2006 earnings growth mainly as a result of job
creation and credit growth.

THE MEXICO EQUITY AND INCOME FUND, INC.

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THE FUND'S PERFORMANCE

For the six-months ended January 31, 2006, the Fund's Net Asset Value, "NAV" per
share gained 28% (adjusted for the 4.6% dilutive effect of the rights offering,
source: PAM)

In comparison, The Mexico Fund, "The MXF", the "Fund's" most comparable peer,
gained 29% for the same period.

The Fund's common share market price gained 29.0% for the semi-annual period,
ending January at a -9.1% discount to that of its "NAV". (source, Bloomberg)

Since its inception on August 30, 1990, the Fund's 15% "NAV" dollar average
annual return as of January 31, 2006, continues to place "The MXE" as a leading
closed-end fund. (Return calculation according to Thomson Financial.)

MXE AVERAGE ANNUAL RETURNS

AS OF 1/31/06 SHARE PRICE NAV
------------------------------------------------------------ ----------- -----

1 Year...................................................... 28.73% 43.00%
3 Years..................................................... 42.08% 48.37%
5 Years..................................................... 17.50% 20.88%
10 Years.................................................... 14.74% 16.17%
Since Inception*............................................ 13.13% 15.48%

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

Source: Thomson

* August 30, 1990

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PORTFOLIO STRATEGY

The Fund's investment policy this year includes the elimination of the six asset
classes we classified and established as a tool for investment decision making
in 2001, i.e. strong market position, undervalued restructuring stories, fast
growing business segments, financial groups, globally consolidated industries,
and global leaders. In their stead we established four main principles for the
Fund's 2006 investment policy to determine our investment decision-making
discipline.

(i) The Fund will remain primarily overweight in infrastructure, housing,
and wireless sectors;

(ii) The Fund will remain non-indexed to the "Mexbol Index" (beta of 1.20);

THE MEXICO EQUITY AND INCOME FUND, INC.

(iii) Fixed-income instruments, CETES (treasury bills) will continue to
remain as one of the five largest asset allocations; and

(iv) Trading should be avoided. Extraordinary events (IPO's) or changes in
corporate investment objectives may be an exception to this rule.

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CONCLUSION AND OUTLOOK

Global benign synchronized growth and a cycle of low interest rates together
with high international oil prices have occurred simultaneously with a
successful monetary policy in Mexico as well as healthy public accounts.
Mexico's macro stability and the convergence of inflation (3.3%), and interest
rates on average in 2005, (8.0%) with those of the U.S. has been consolidated
over the last four years.

We believe that the Fund's 2006 investment policy in infrastructure and housing,
as well as value stocks will be the main driver of the Fund's capital
appreciation over the next three-to-five years.

We remain optimistic about the long-term growth prospects of the "Mexbol", as
estimated 2006 EBITDA growth for the Mexbol remains at 13% (UBS Mexico universe)
and 11% (Santander Investments universe). The Mexbol's current valuation
multiple of 10x has increased 51% in just three years.

Of the three major factors influencing the economy this year, the possibility of
Mexico electing a left-wing president for the first time in its contemporary
history will likely be the acid test for Mexico's institutional democracy.

As always, we will continue to search for value and growth stocks to the benefit
of MXE's stockholders in the long-term.

THE MEXICO EQUITY AND INCOME FUND, INC.

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RELEVANT INFORMATION

REAL ACTIVITY (BILLION US$) 1999 2000 2001 2002 2003 2004 2005
----------------------------------- ------- ------- ------- ------- ------- ------- -------

Real GDP Growth (y-o-y)............ 3.7% 6.6% (0.3)% 0.9% 1.3% 4.4% 3.0%
Industrial Production (y-o-y)...... 4.2% 6.0% (3.5)% 0.0% (0.75)% 3.8% 1.6%
Trade Balance (US billions)........ $ (5.6) $ (8.0) $ (10.0) $ (8.0) $ (5.6) $ (8.1) $ (7.6)
Exports............................ $ 136.4 $ 166.5 $ 158.4 $ 160.7 $ 164.8 $ 189.1 $ 213.7
Export growth (y-o-y).............. 16.1% 22.1% (4.9)% 1.5% 2.5% 14.7% 14%
Imports............................ $(142.0) $(174.5) $(168.4) $(168.7) $(170.5) $(197.2) $(221.3)
Import growth (y-o-y).............. 13.2% 22.9% (3.5)% 0.2% 1.1% 15.7% 12%

FINANCIAL VARIABLES AND PRICES 1999 2000 2001 2002 2003 2004 2005
----------------------------------- ------- ------- ------- ------- ------- ------- -------

28-Day CETES (T-bills)/Average..... 31.40% 15.30% 11.20% 7.10% 6.24% 8.60% 8.02%
Exchange rate (Pesos/US$)Average... 9.56 9.46 9.34 9.66 10.79 11.147 10.635
Inflation IPC, 12 month trailing... 12.3% 9.0% 4.4% 5.7% 4.0% 5.2% 3.3%

MEXBOL INDEX 1999 2000 2001 2002 2003 2004 2005
----------------------------------- ------- ------- ------- ------- ------- ------- -------

USD Return......................... 90.39% (20.81)% 20.88% (14.43)% 33.61% 50.49% 44.9%
Market Cap. (US Billions).......... $ 129.6 $ 111.7 $ 112.4 $ 103.8 $ 124.7 $ 169.5 $ 283.8
EV/EBITDA.......................... 10.5x 7.9x 8.1x 6.6x 7.8x 8.3x 8.9x

FUND'S NAV & COMMON SHARE MARKET PRICE PERFORMANCE

(USD RETURN) 1999 2000 2001 2002 2003 2004 2005
----------------------------------- ------- ------- ------- ------- ------- ------- -------

NAV's per share.................... 59.2% (14.2)% 10.0% (13.5)% 40.0% 55.6% 38.7%
Share Price........................ 74.7% (5.6)% 18.7% (18.5)% 36.0% 66.6% 8.1%

Source: Thomson

FUND'S ASSET CATEGORIES (%) NET ASSETS 2001 2002 2003 2004 2005
------------------------------------------ ----- ----- ------ ------ -----

Strong market position.................... 22.9% 28.2% 32.7% 32.3% 27.7%
Undervalued/restructuring stories......... 18.5% 15.6% 27.7% 18.9% 12.8%
Fast growing business segments............ 14.9% 8.8% 17.8% 30.8% 35.2%
Financial groups.......................... 19.4% 14.4% 7.5% 4.2% 1.9%
Globally consolidated industries.......... 9.1% 13.8% 6.4% 3.0% 0.0%
Global leaders............................ 9.1% 5.9% 4.6% 6.2% 18.9%
Warrants/Equity mutual funds.............. 0.0% 1.7% 0.0% 0.0% 0.0%
Fixed Income.............................. 6.0% 19.6% 3.4% 4.6% 3.5%

THE MEXICO EQUITY AND INCOME FUND, INC.

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.

THE MEXICO EQUITY AND INCOME FUND, INC.

Allocation of Portfolio Assets JANUARY 31, 2006
(CALCULATED AS A PERCENTAGE OF NET ASSETS)
(UNAUDITED)

(BAR CHART)

Communications 17.30
Housing 16.22
Infrastructure 12.05
Retailing 11.06
Media 10.68
Food, Beverage, and Tobacco 8.10
Cement 7.19
Industrial Conglomerates 6.62
Investment Companies 5.37
Mining 5.03
Financial Groups 1.56
Corporate Bonds 1.00

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Schedule of Investments JANUARY 31, 2006

(UNAUDITED)

MEXICO - 101.23% SHARES VALUE
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COMMON STOCKS - 95.81%
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COMMUNICATIONS - 17.30%
America Movil, S.A. de C.V. - Class L..................... 1,808,600 $ 3,061,254
America Movil, S.A. de C.V. - Class L ADR................. 112,370 3,790,240
America Telecom, S.A. de C.V. - Class A1*................. 1,370,000 7,440,874
-----------
14,292,368
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CEMENT - 7.19%
Cemex, S.A. de C.V. CPO................................... 598,937 3,954,665
Grupo Cementos de Chihuahua, S.A. de C.V. ................ 650,000 1,988,351
-----------
5,943,016
-----------
FINANCIAL GROUPS - 1.56%
Grupo Financiero Banorte, S.A. de C.V. - Class O.......... 542,400 1,291,639
-----------
1,291,639
-----------
FOOD, BEVERAGE, AND TOBACCO - 8.10%
Alsea, S.A. de C.V. ...................................... 1,010,394 3,116,498
Gruma S.A. de C.V. ....................................... 966,300 3,575,666
-----------
6,692,164
-----------
HOUSING - 16.22%
Consorcio ARA, S.A. de C.V. .............................. 100,800 482,975
Corporacion GEO, S.A. de C.V. - Class B*.................. 1,509,800 5,186,209
SARE Holding, S.A. de C.V. - Class B*..................... 3,035,306 3,779,777
Urbi, Desarrollos Urbanos, S.A. de C.V.*.................. 535,700 3,950,207
-----------
13,399,168
-----------
INDUSTRIAL CONGLOMERATES - 6.62%
Alfa, S.A. - Class A...................................... 197,000 1,119,029
Industrias CH, S.A.*...................................... 712,400 1,753,789
Mexichem S.A. de C.V. .................................... 1,962,000 2,593,572
-----------
5,466,390
-----------

See Notes to the Financial Statements.

Schedule of Investments (continued)
JANUARY 31, 2006
(UNAUDITED)

THE MEXICO EQUITY AND INCOME FUND, INC.

COMMON STOCKS (CONTINUED) SHARES VALUE
----------------------------------------------------------------------------------------------

INFRASTRUCTURE - 12.05%
Carso Infraestructura y Construccion, S.A.*............... 4,236,800 $ 3,530,836
Empresas ICA Sociedad Conroladora S.A. de C.V.*........... 1,285,550 4,073,566
Impulsora del Desarrollo y el Empleo en America Latina,
S.A. de C.V.*........................................... 1,894,023 2,345,871
-----------
9,950,273
-----------
MEDIA - 10.68%
Grupo Televisa, S.A. ADR.................................. 25,100 2,097,105
Grupo Televisa, S.A. CPO.................................. 1,610,300 6,729,957
-----------
8,827,062
-----------
MINING - 5.03%
Grupo Mexico, S.A. de C.V. - Class B...................... 1,481,800 4,155,011
-----------
RETAILING - 11.06%
Grupo Elektra, S.A. de C.V. .............................. 341,400 3,393,234
Wal-Mart de Mexico, S.A. de C.V. - Class V................ 988,084 5,743,277
-----------
9,136,511
-----------
TOTAL COMMON STOCKS (Cost $63,580,801).................... $79,153,602
-----------

CORPORATE BONDS - 1.00% TITLES
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TVACB-04, 11.1800%, 12-15-2011(+)......................... 11,265,000 822,440
-----------
TOTAL CORPORATE BONDS (Cost $1,000,000)................... 822,440
-----------

See Notes to the Financial Statements.

Schedule of Investments (concluded)
JANUARY 31, 2006
(UNAUDITED)

THE MEXICO EQUITY AND INCOME FUND, INC.

INVESTMENT COMPANIES - 4.42% SHARES VALUE
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GBM Fondo de Mercado de Dinero S.A. de C.V. SIID para
Personas Fisicas*....................................... 1,577,883 $ 3,659,741
-----------
TOTAL INVESTMENT COMPANIES (Cost $3,650,850).............. 3,659,741
-----------
TOTAL MEXICO (Cost $68,231,651)........................... 83,635,783
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UNITED STATES - 0.95%
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INVESTMENT COMPANIES - 0.95%
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Treasury Cash Series II, 3.5200%.......................... 781,853 781,853
First American Obligations Fund, 3.9700%.................. 46 46
-----------
TOTAL INVESTMENT COMPANIES (Cost $781,899)................ 781,899
-----------
TOTAL UNITED STATES (Cost $781,899)....................... 781,899
-----------
TOTAL INVESTMENTS - 102.18% (COST $69,013,550)............ 84,417,682
LIABILITIES IN EXCESS OF OTHER ASSETS - (2.18)%........... (1,801,783)
-----------
TOTAL NET ASSETS - 100.00%................................ $82,615,899
===========

FOOTNOTES AND ABBREVIATIONS
* - Non-income producing security.
ADR - American Depository Receipts.
(+) - Fair valued security. See Note A in Notes to Financial Statements.

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Statement of Assets & Liabilities JANUARY 31, 2006

(UNAUDITED)

ASSETS:
Investments, at value (Cost $69,013,550).................... $84,417,682
Cash........................................................ 476,273
Foreign currencies (Cost $77,656)........................... 78,069
Receivables:
Investments sold.......................................... 4,390,668
Interest.................................................. 25,805
Prepaid expenses............................................ 76,341
-----------
TOTAL ASSETS.............................. 89,464,838
-----------
LIABILITIES:
Payable for securities purchased............................ 6,734,742
Advisory fees payable....................................... 49,851
Administration fees payable................................. 11,139
Fund accounting fees payable................................ 7,692
Directors' fees payable..................................... 8,308
Custody fees payable........................................ 7,362
CCO's fee payable........................................... 2,000
Accrued expenses............................................ 27,845
-----------
TOTAL LIABILITIES......................... 6,848,939
-----------

NET ASSETS................................ $82,615,899
===========
NET ASSET VALUE PER PREFERRED STOCK
($30,256,398/1,429,336)................ $ 21.17
===========
NET ASSET VALUE PER COMMON STOCK
($52,359,501/2,473,504)................ $ 21.17
===========

NET ASSETS CONSIST OF:
Preferred stock, $0.001 par value; 1,429,336 shares
outstanding (1,855,128 shares authorized)................. $ 1,429
Common stock, $0.001 par value; 2,473,504 shares outstanding
(100,000,000 shares authorized)........................... 2,474
Paid-in capital............................................. 60,246,666
Undistributed net investment loss........................... (62,186)
Accumulated net realized gain on investments and foreign
currency.................................................. 7,022,919
Net unrealized appreciation on investments and foreign
currency.................................................. 15,404,597
-----------

NET ASSETS................................ $82,615,899
===========

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Statement of Operations FOR THE SIX MONTHS ENDED
JANUARY 31, 2006 (UNAUDITED)

INVESTMENT INCOME:
Dividends................................................................. $ 385,760
Interest.................................................................. 106,585
-----------
TOTAL INVESTMENT INCOME................................. 492,345
-----------
EXPENSES:
Advisory fees............................................... $236,512
Legal fees.................................................. 118,937
Administration fees......................................... 33,379
Reports to shareholders..................................... 24,747
Fund accounting fees........................................ 22,807
Directors' fees and expenses................................ 21,255
Custodian fees.............................................. 20,830
Insurance expense........................................... 20,224
Audit fees.................................................. 12,252
CCO's fee................................................... 12,144
NYSE fees................................................... 11,157
Transfer agent fees......................................... 5,942
--------
TOTAL EXPENSES.......................................... 540,186
-----------
NET INVESTMENT LOSS....................................................... (47,841)
-----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investments and foreign currency transactions...... 8,120,859
Net change in unrealized appreciation from investments and foreign
currency transactions................................................... 7,541,417
-----------
Net gain from investments and foreign currency transactions............... 15,662,276
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $15,614,435
===========

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Statements of Changes in Net Assets

FOR THE
SIX MONTHS
ENDED FOR THE YEAR
JANUARY 31, 2006 ENDED
(UNAUDITED) JULY 31, 2005
---------------- -------------

INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss)........................... $ (47,841) $ 14,602
Net realized gain investments and foreign currency
transactions......................................... 8,120,859 13,122,119
Net change in unrealized appreciation in value of
investments and foreign currency transactions........ 7,541,417 5,705,280
------------ -----------
Net increase in net assets resulting from
operations........................................ 15,614,435 18,842,001
------------ -----------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income.................................. -- --
Net realized gains..................................... -- --
Return of capital...................................... -- --
------------ -----------
Decrease in net assets from distributions............ -- --
------------ -----------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income.................................. (395,538) --
Net realized gains..................................... (10,909,315) --
Return of capital...................................... -- --
------------ -----------
Decrease in net assets from distributions............ (11,304,853) --
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Purchase of common stock for dividend.................. (4,514,583) --
Issuance of common stock for dividend.................. 4,514,583 --
Proceeds from preferred stock sold..................... 25,685,167 --
------------ -----------
Increase in net assets from capital share
transactions......................................... 25,685,167 --
------------ -----------
Total increase in net assets......................... 29,994,749 18,842,001
NET ASSETS:
Beginning of period.................................... 52,621,150 33,779,149
------------ -----------
End of period*......................................... $ 82,615,899 $52,621,150
============ ===========
*Including undistributed net investment income (loss)
of:............................................... $ (62,186) $ 381,193
------------ -----------

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Financial Highlights

FOR A COMMON 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, 2006 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) JULY 31, 2005 JULY 31, 2004 JULY 31, 2003 JULY 31, 2002 JULY 31, 2001
---------------- ------------- ------------- ------------- ------------- -------------

PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $21.27 $13.66 $10.15 $ 8.74 $ 10.19 $11.36
------ ------ ------ ------ ------- ------
Net investment income
(loss)..................... (0.01) 0.01 (0.02) 0.00(2) (0.03) (0.02)
Net realized and unrealized
gains (losses) on
investments and foreign
currency transactions...... 5.68 7.60 3.55 1.41 (1.42) (0.64)
------ ------ ------ ------ ------- ------
Net increase (decrease) from
investment operations...... 5.67 7.61 3.53 1.41 (1.45) (0.66)
------ ------ ------ ------ ------- ------
Less: Distributions
Dividends from net
investment income....... (0.16) -- (0.02) -- -- (0.01)
Distributions from net
realized gains.......... (4.41) -- -- -- -- (0.60)
Return of capital.......... -- -- -- -- -- (0.01)
------ ------ ------ ------ ------- ------
Total dividends and
distributions.............. (4.57) -- (0.02) -- -- (0.62)
Capital Share Transactions
Anti-dilutive effect of
Tender Offer............ -- -- -- -- -- 0.09
Anti-dilutive effect of
Share Repurchase........ 0.18 -- -- -- -- 0.02
Dilutive effect of Share
Issuance................ (0.18) -- -- -- -- --
Dilutive effect of
Preferred Share
Issuance................ (1.20) -- -- -- -- --
------ ------ ------ ------ ------- ------
Total capital share
transactions............... (1.20) -- -- -- -- 0.11
------ ------ ------ ------ ------- ------
Net asset value, end of
period..................... $21.17 $21.27 $13.66 $10.15 $ 8.74 $10.19
====== ====== ====== ====== ======= ======
Per share market value, end
of period.................. $19.25 $18.82 $11.73 $ 9.10 $ 7.95 $ 9.11
Total Investment Return
Based on Market Value,
end of period(1)........... 26.39%(3) 60.44% 29.10% 14.47% (12.73)% (8.64)%

Financial Highlights (continued)

FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD

THE MEXICO EQUITY AND INCOME FUND, INC.

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's).................. $ 52,360 $ 52,621 $ 33,779 $ 25,104 $ 21,629 $ 87,620
Ratios of expenses to
average net assets:
Before expense
reimbursement......... 1.82%(4) 1.77% 2.09% 2.64% 1.81% 1.90%
After expense
reimbursement......... 1.82%(4) 1.77% 2.08% 2.62% 1.81% 1.90%
Ratios of net investment
income (loss) to average
net assets:
Before expense
reimbursement......... (0.14)%(4) 0.03% (0.15)% 0.02% (0.14)% (0.16)%
After expense
reimbursement......... (0.14)%(4) 0.03% (0.14)% 0.04% (0.14)% (0.16)%
Portfolio turnover rate.... 116.69%(5) 259.60% 234.42% 180.67% 189.05% 220.85%

(1) 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.

(2) The amount listed is less than $0.005 per share.

(3) Not Annualized

(4) Annualized

(5) Calculated on the basis of the Fund as a whole without distinguishing
between shares issued.

See Notes to the Financial Statements.

Financial Highlights (concluded)

THE MEXICO EQUITY AND INCOME FUND, INC.

FOR A PREFERRED SHARE OUTSTANDING THROUGHOUT THE PERIOD

FOR THE PERIOD
JANUARY 7, 2006 THROUGH
JANUARY 31, 2006
(UNAUDITED)
-----------------------

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 21.25
-------
Net investment loss......................................... (0.02)
Net realized and unrealized gains (losses) on investments
and foreign currency transactions......................... (0.06)
-------
Net decrease from investment operations..................... (0.08)
-------
Less: Distributions
Dividends from net investment income...................... --
Distributions from net realized gains..................... --
Return of capital......................................... --
-------
Total dividends and distributions........................... --
-------
Net asset value, end of period.............................. $ 21.17
=======
Per share market value, end of period....................... $ 19.12
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE, END OF
PERIOD(1)................................................. 2.96%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)........................... $30,256
Ratios of expenses to average net assets:
Before expense reimbursement.............................. 1.90%(3)
After expense reimbursement............................... 1.90%(3)
Ratios of net investment loss to average net assets:
Before expense reimbursement.............................. (1.26)%(3)
After expense reimbursement............................... (1.26)%(3)
Portfolio turnover rate..................................... 116.69%(4)

(2) Not Annualized

(3) Annualized

(4) Calculated on the basis of the Fund as a whole without distinguishing
between shares issued.

See Notes to the Financial Statements.

THE MEXICO EQUITY AND INCOME FUND, INC.

Notes to Financial Statements JANUARY 31, 2006
(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. These
methods include, but are not limited to, the fundamental analytical data
relating to the investment; the nature and duration of restrictions in the
market in which they are traded (including the time needed to dispose of the
security, methods of soliciting offers and mechanics of transfer); the
evaluation of the forces which influence the market in which these securities
may be purchased or sold, including the economic outlook and the condition of
the industry in which the issuer participates. As of January 31, 2006, the Fund
held one security which represented 1.00% of the Fund's net assets 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

Notes to Financial Statements (continued)
JANUARY 31, 2006
(UNAUDITED)

THE MEXICO EQUITY AND INCOME FUND, INC.

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. Federal income and
excise taxes.

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,
2005, the Fund increased undistributed net investment income by $366,591,
decreased accumulated net realized gain on investments by $416,986, and
increased paid-in capital by $50,395, due to the tax treatment of foreign
currency gains and losses.

Notes to Financial Statements (continued)
JANUARY 31, 2006
(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

Notes to Financial Statements (continued)
JANUARY 31, 2006
(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, 2006 and July 31, 2005 were as
follows:

DISTRIBUTIONS PAID FROM: 1/31/06 7/31/05
------------------------ ------- -------

Ordinary Income....................................... $ 6,722,440 $ --
Long-Term Capital Gain................................ 4,582,413 --
Return of Capital..................................... -- --
----------- -----------
Total................................................. $11,304,853 $ --
=========== ===========

As of July 31, 2005, the components of distributable earnings on a tax basis
were as follows:

Cost of investments and foreign currency (a)................ $ 44,717,222
------------
Gross tax unrealized appreciation........................... 7,988,022
Gross tax unrealized depreciation........................... (110,501)
------------
Net tax unrealized appreciation............................. $ 7,877,521
============
Undistributed ordinary income............................... $ 6,099,501
Undistributed long-term capital gain........................ 4,107,408
------------
Total distributable earnings................................ $ 10,206,909
============

Other accumulated losses.................................... $ (28,682)
------------

Total accumulated earnings.................................. $ 18,055,748
============

(a) Represents cost for federal income tax purposes. Differences between the
Fund's cost basis of investments and foreign currency at July 31, 2005, 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).

Notes to Financial Statements (continued)
JANUARY 31, 2006
(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, 2006, these fees amounted to $236,512. 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, 2006, there were no expense reimbursements made
by the Investment Adviser.

Effective November 1, 2005, 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 $12,000 plus $1,000 for each Board of
Directors meeting attended and $250 for each Audit Committee meeting attended.
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 $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

Notes to Financial Statements (continued)
JANUARY 31, 2006
(UNAUDITED)

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 six months ended January 31, 2006, the Mexico Equity and Income Fund,
Inc. incurred Administration fees of $33,379, Fund Accounting fees of $22,807
and Custody fees of $20,830.

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
$85,883,377 and $70,133,674 respectively, for the six months ended January 31,
2006.

At January 31, 2006 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
The Board of Directors approved rights offering (the "Offering") on October 12,
2005. In connection with the Offering by the Fund, the Fund issued to
stockholders of record as of November 30, 2005 (the "Record Date") 0.75
nontransferable rights to purchase one share of preferred stock for each share
of common stock owned as of the Record Date. The rights entitled the holders to
purchase three shares of preferred stock for every four shares held as of the
Record Date at a subscription price calculated as the greater of (i) 90% of the
Fund's asset value per share ("NAV") as determined on the Expiration Date
(December 28, 2005) or (ii) the average closing price of the Fund's common stock
over the four consecutive trading days ending on the Expiration Date. On January
7, 2006, the Fund issued 1,429,336 shares of preferred stock at $17.97 per
share, which raised $25,685,167. The net asset value per share of the Fund's
common stockholders was reduced by approximately $1.20 per share as a result of
this issuance.

Notes to Financial Statements (concluded)

THE MEXICO EQUITY AND INCOME FUND, INC.

During the six months ended January 31, 2006, the Fund purchased 242,594 shares
of capital stock in the open market at a total cost of $4,514,583. The weighted
average discount of these purchases comparing the purchase price to the net
asset value at the time of purchase was 8.60%. On December 13, 2005, the Board
of Directors declared a stock dividend of $4.57038 per common share. This
dividend was paid in shares of common stock of the Fund, and in cash by specific
election. Some shareholders selected the stock dividend; therefore on January
31, 2006 the Fund issued 242,594 shares, which amounted to $4,514,583.

During the years ended July 31, 2005, 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%.

Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.

NOTE E: NEW DIRECTOR
At a Board of Directors meeting held on December 9, 2006, the Board unanimously
elected Pablo Padilla as an Interested Director of the Fund.

NOTE F: PREFERRED STOCK
The Fund intends to conduct a series of tender offers for preferred stock only
(each, a "Tender Offer") on a semi-annual basis (each semi-annual period, a
"Tender Period"), on dates to be determined by the Board of Directors and
beginning within the 6-month period between January 31, 2006 and July 31, 2006,
in which 25% of the issued and outstanding preferred stock may be tendered to
the Fund and repurchased in kind for the Fund's portfolio securities. The Board
of Directors currently knows of no reason why the Tender Offers would not be
conducted. The consideration for the preferred stock to be repurchased by the
Fund shall be that value of portfolio securities equal to 99% of NAV as
determined, with respect to each Tender Offer, on a date designated by the Board
of Directors. The Fund may pay cash for fractional shares; or round off (up or
down) fractional shares so as to eliminate them prior to distribution.

In the event the Put Warrant Program is approved by the SEC and upon the
anticipated issuance of put warrants by the Fund, all issued and outstanding
shares of preferred stock will automatically convert to our common stock on a
one-for-one basis upon the anticipated issuance of put warrants by the Fund and,
shortly thereafter, stockholders will receive put warrants.

THE MEXICO EQUITY AND INCOME FUND, INC.

Additional Information (unaudited) JANUARY 31, 2006

NOTE A: 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 most recent
twelve month period ended June 30 is available on the SEC's website at
www.sec.gov or by calling the toll-free number listed above.

NOTE B: 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 1-866-700-6104. 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 1-800-SEC-0330.

NOTE C: INFORMATION ABOUT CERTIFICATIONS
In November 2005, the Fund submitted a CEO annual certification to the NYSE in
which the Fund's principal executive officer certified that he was not aware, as
of the date of the certification, of any violation by the Fund of the NYSE's
Corporate Governance listing standards. In addition, as required by Section 302
of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund's principal
executive and principal financial officers have made quarterly certifications,
included in the filing with the SEC on Forms N-CSR and N-Q, relating to, among
other things, the Fund's disclosure controls and procedures and internal control
over financial reporting.

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

Dividends and Distributions (unaudited) (continued)

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.

Dividends and Distributions (unaudited) (concluded)

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.

THE MEXICO EQUITY AND INCOME FUND, INC.

Results of Annual Stockholders Meeting (unaudited)

The Fund's Annual Stockholders meeting was held on November 29, 2005, at 405
Lexington Avenue, New York, New York 10174. As of October 17, 2005, the record
date, outstanding shares of common stock ("shares") of the Fund were 2,473,504.
Holders of 2,107,413 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 two Directors to the Board of Directors.

The following table provides information concerning the matter voted on at the
meeting:

I. ELECTION OF DIRECTORS

NOMINEE VOTES FOR VOTES WITHHELD
------- --------- --------------

Phillip
Goldstein 2,054,177 53,236
Glenn Goodstein 2,054,177 53,236

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, 2006

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.

The standing audit committee is comprised of Mr. Andrew Dakos, Mr. Phillip
Goldstein, Mr. Glenn Goodstein 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.

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.

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

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

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

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

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 for closed-end funds until a fiscal year ending on or after
December 31, 2005.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

(D)
(C) MAXIMUM NUMBER (OR
TOTAL NUMBER OF APPROXIMATE DOLLAR
(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
PERIOD PURCHASED PLANS OR PROGRAMS THE PLANS OR PROGRAMS
-------------------- ------------------- -------------------- -------------------- -----------------------

08/01/05 to 08/31/05 0 $0 0 0
09/01/05 to 09/30/05 0 $0 0 0
10/01/05 to 10/31/05 0 $0 0 0
11/01/05 to 11/30/05 0 $0 0 0
12/01/05 to 12/31/05 0 $0 0 0
01/01/06 to 01/31/06 242,594 (1) $18.60 0 0
Total 242,594 $18.60 0 0

(1) The purchases were made in open-market transactions to satisfy the dividend
payment which was payable on January 26, 2006.

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/Chief Executive Officer and Treasurer/Chief
Financial Officer have reviewed the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940 (the "Act")) as of a date within 90 days of the
filing of this report, as required by Rule 30a-3(b) under the Act and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934.
Based on their review, such officers have concluded that the disclosure
controls and procedures are effective in ensuring that information
required to be disclosed in this report is appropriately recorded,
processed, summarized and reported and made known to them by others
within the Registrant and by the Registrant's service provider.

(b) There were no significant changes in the Registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act)
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.

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. Not applicable to open-end
investment companies.

(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.

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 10, 2006
--------------

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 10, 2006
--------------

By (Signature and Title) /s/ Gerald Hellerman
----------------------------------------------
Gerald Hellerman, Chief Financial Officer

Date April 6, 2006
-------------