<PAGE>
[LOGO]
November 17, 1995
Dear Shareholders:
We are pleased to present our report on the activities of The Brazilian Equity
Fund, Inc. (the "Fund") for the six months ended September 30, 1995.
At September 30, 1995, the Fund's investments in Brazilian equity securities
totaled $70.8 million. In addition, the Fund had a balance of $3.2 million
invested in short-term obligations. At September 30, 1995, the Fund's net asset
value was $15.95 per share, as compared to $13.02 per share at March 31, 1995.
SUMMARY OF POLITICAL AND ECONOMIC DEVELOPMENTS
Over the past six months, equity returns in the major Latin American equity
markets have been increasingly driven by local events rather than by broad
global or regional trends. This is, in our view, an indication of reviving
health in these markets, marking the end of the Mexican peso crisis as a
significant regional problem. In a normal market environment, returns of the
Latin American markets have tended to show extremely low inter-market
correlations. As in the developed markets, these correlations tend to rise
significantly during major market dislocations, as markets move downward in
virtual lockstep. The obvious examples of this effect are October 1987 for the
developed markets and December 1994 for the Latin American markets. The broad
divergence of Latin American returns during the past few months, then, is a
positive sign that the "tequila effect" is becoming a less and less important
issue.
Nonetheless, it remains clear that Mexico's troubles will continue for some time
to have a meaningful impact on near term macro-economic fundamentals in Brazil
and throughout the region. In addition, capital inflows to Latin American
markets are likely to decline significantly this year, and possibly next year.
Direct investment by companies may well rise, but portfolio flows have declined
precipitously. In particular, North American investors' allocations to the
region are unlikely to recover for at least several more months. While this
sounds bleak, there is a silver lining to the situation. Firstly, a large amount
of bad news is reflected in current asset prices throughout Latin America; in
light of the tremendous progress being made in Brazil, it appears to us that the
market would be significantly higher were it not for the remaining hangover from
the "tequila effect." Secondly, the peso crisis has acted as a wake-up call to
policy makers in countries throughout the region. In the wake of the Mexican
debacle, for example, renewed attention is being paid to the need for reform in
the social security and pension systems, in order to give a much-needed boost to
the national
1
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THE BRAZILIAN EQUITY FUND, INC.
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savings rate. Similarly, we anticipate renewed measures to reduce bureaucracy
and increase deregulation, primarily through the privatization process. In
Brazil, the passage in 1996 of a series of far-reaching privatizations will be a
key to the ultimate transition of the economy.
Fundamentally, the picture is increasingly positive. While the REAL was devalued
during June, for the second time this year, this time the devaluation was
handled in a forthright and eminently successful way. This contrasts with the
March devaluation, which necessitated massive intervention by the Brazilian
central bank, costing $6 billion in currency reserves. As a result, the market's
response this time was calm and generally positive. The REAL still trades at a
small premium to the U.S. dollar -- it should be remembered in this context that
the original goal of the REAL Plan was a one-to-one exchange rate.
The REAL Plan is now a year and a half old, and inflation remains under control.
Back in 1994, investors in the Brazilian equity market were hopeful -- if not
entirely optimistic -- that the government's newest anti-inflation plan would be
implemented successfully, which would in turn help to stabilize the economy and
perhaps even drive the ruling party's presidential candidate to victory in the
October 1994 elections. At the time, Brazil was coming off a period of profound
political uncertainty (including the removal from office of a sitting president)
combined with a socially destructive and seemingly insurmountable
hyperinflation. The REAL Plan of July 1994, designed by then Finance Minister
Fernando Enrique Cardoso, was the government's eighth attempt in nine years to
bring inflation under control. Since then, Brazilian inflation has dramatically
declined from an annual rate of nearly 2,500% at the end of 1993 to an
annualized rate of approximately 35%. Economic growth has been robust, coming in
at 5.7% for 1994. It is anticipated that Brazilian GDP will grow an average of
6% per annum for the years 1995 through 1997. It is also expected that the
Southern Common Market, or "Mercosur," composed of Brazil, Argentina, Paraguay
and Uruguay, which became a formal customs union as of the beginning of 1995,
will lead to increased trade and business activity among Brazil and her
neighbors. This should further expand economic growth and investment
opportunities in Brazil and the region.
The increasingly positive tone of the Brazilian market during the third quarter
was largely a result of significantly improving inflation numbers, which
reinforce the fact that President Cardoso's REAL Plan is continuing to work. As
inflation subsides as a meaningful threat to the economy, investors have been
buoyed by the expectation that interest rates will therefore be allowed to
decline, particularly in light of similar movements in U.S. interest rates. The
anticipated easing would likely spark an accelerated rally in the Brazilian
equity market. In our view, Brazilian equities have been held back to some
extent by the extremely high yields available in the fixed income market;
declining interest rates could therefore drive local money back into equities.
In order for this to occur, however, more progress is required on privatization,
and some problems have been evident in recent months in this regard. In
addition, a solution to the government's fiscal difficulties is not yet in
sight. Cardoso's challenge over the next year or so will be to push through a
2
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THE BRAZILIAN EQUITY FUND, INC.
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meaningful program of tax reform, which will be opposed by strongly entrenched
interest groups. This will be the key to righting the fiscal boat, which will in
turn permit the administration to balance the dynamic forces of interest rates,
inflation, currency stability and trade.
Nonetheless, the political situation in Brazil is arguably the most positive it
has been for financial markets in the last decade. President Cardoso and his
principal advisors are considered likely to instigate widespread reforms over
the coming years. The effect will be far reaching, and lead to significant
benefits. This market's very strong performance over the past six months
reflects this consistently improving outlook. In addition, policies being
proposed should eventually lead to an improved fiscal situation and thus to
lower interest rates and currency stability. Financial assets look highly
attractive under such circumstances. In particular, tremendous value should be
realized in several quasi-state run sectors such as electricity and
telecommunications. In addition, increased deregulation and lower taxes will
increase corporate profits substantially for large segments of private industry.
Finally, the country's national competitive advantages in a range of sectors --
including paper and pulp, and steel and iron -- should provide attractive
investment opportunities, particularly as world economic activity recovers.
PORTFOLIO PERFORMANCE
From inception through September 30, 1995, the Fund's total return, based on net
asset value and assuming reinvestment of dividends and distributions, was 39.8%.
During the same period, the Morgan Stanley Capital International Brazilian Index
rose by 52.7% in U.S. dollar terms.
As of September 30, 1995, it is estimated that the Brazilian market had an
aggregate price/earnings ratio of approximately 11 times trailing earnings, and
a market to book ratio of approximately 60%. In light of these and other
relevant valuation indicators, we continue to believe that Brazilian equities
provide the opportunity for substantial price appreciation over the long term.
Effective August 15, 1995, Richard Watt was elected as a Director and Chief
Investment Officer of the Fund by a vote of the Fund's Board of Directors. Mr.
Watt is a Senior Vice President of BEA Associates. He joined BEA Associates on
August 2, 1995. Mr. Watt was formerly associated with Gartmore Investment
Limited in London, where he was head of emerging markets investments and
research. In this capacity, he led a team of four portfolio managers and was
manager of a closed-end Latin American fund focusing on smaller companies.
Before joining Gartmore in 1992, Mr. Watt was a director of Kleinwort Benson
International Investment in London, where he was responsible for research,
analysis and trading of equities in Latin America and other regions.
3
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THE BRAZILIAN EQUITY FUND, INC.
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We wish to remind shareholders whose shares are registered in their own names
that they automatically participate in the Fund's dividend reinvestment program.
The automatic Dividend Reinvestment Plan can be of value to shareholders in
maintaining their proportional ownership interest in the Fund in an easy and
convenient way. A shareholder whose shares are held in the name of a
broker/dealer or nominee should contact that party for details about
participating in the plan. The Fund also offers shareholder a voluntary Cash
Purchase Plan. The Dividend Reinvestment and Cash Purchase Plans are described
on pages 17-18 of this report.
We appreciate your interest in the Fund and would be pleased to respond to your
questions and comments.
Respectfully,
[LOGO]
Emilio Bassini
Chairman of the Board and President
[LOGO]
Richard Watt
Chief Investment Officer
4
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THE BRAZILIAN EQUITY FUND, INC.
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PORTFOLIO SUMMARY
AS OF SEPTEMBER 30, 1995 (unaudited)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Sector Allocation
Telecommunications 15.1%
Electric Generation 10.3%
Holding Companies 8.2%
Consumer Goods 8.2%
Petrochemicals 7.6%
Electric Distribution 7.1%
Food & Beverages 6.8%
Steel 6.4%
Banking 5.6%
Textiles 5.1%
Retail 4.7%
Capital Goods 3.4%
Cash and cash equivilents 3.9%
Other 7.6%
</TABLE>
THIS CHART REPRESENTS THE SECTOR ALLOCATION OF TOTAL NET ASSETS OF THE FUND.
TOP 10 EQUITY HOLDINGS, BY ISSUER, AS OF SEPTEMBER 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
OF
HOLDING SECTOR NET ASSETS
<C> <S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1. Telecomunicacoes Brasileiras S.A. Telecommunications 11.92%
- ------------------------------------------------------------------------------------------------------------------------
2. Centrais Eletricas Brasileiras S.A. Electric Generation 10.28%
- ------------------------------------------------------------------------------------------------------------------------
3. Petroleo Brasileiro S.A. Petrochemicals 6.91%
- ------------------------------------------------------------------------------------------------------------------------
4. Investimentos Itau S.A. Holding Companies 4.85%
- ------------------------------------------------------------------------------------------------------------------------
5. Companhia Tecidos Norte de Minas S.A. Textiles 4.58%
- ------------------------------------------------------------------------------------------------------------------------
6. Usinas Siderurgicas de Minas Gerais S.A. Steel 4.15%
- ------------------------------------------------------------------------------------------------------------------------
7. Lojas Americanas S.A. Retail 4.10%
- ------------------------------------------------------------------------------------------------------------------------
8. Banco Bradesco S.A. Banking 3.69%
- ------------------------------------------------------------------------------------------------------------------------
9. Companhia Cervejaria Brahma Food & Beverages 3.45%
- ------------------------------------------------------------------------------------------------------------------------
10. Brasmotor S.A. Holding Companies 3.31%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
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THE BRAZILIAN EQUITY FUND, INC.
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SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1995 (unaudited)
<TABLE>
<CAPTION>
VALUE
NO. OF SHARES DESCRIPTION (NOTE A)
- ------------- -------------------------------------------------------------------------------- -------------
<C> <S> <C>
BRAZILIAN EQUITY OR EQUITY-LINKED SECURITIES-96.06%
BANKING-5.59%
291,470,905 Banco Bradesco S.A. PN........................................................ $ 2,722,169
87,050,000 Banco do Brazil S.A. PN*...................................................... 1,397,623
-------------
4,119,792
-------------
CAPITAL GOODS-3.42%
14,084 Bardella S.A. Industrias Mecanicas PN......................................... 2,069,112
562,205 Trafo Equipamentos Electricos S.A. PN*........................................ 454,271
-------------
2,523,383
-------------
CONSTRUCTION MATERIAL-1.81%
1,020,000 Confab Industrial S.A. PN*.................................................... 717,142
1,683,500 Eternit S.A. ON............................................................... 618,317
-------------
1,335,459
-------------
CONSUMER GOODS-8.16%
1,588,293 Dixie Toga Lalekla S.A. PN*................................................... 1,366,704
1,633,000 Multibras da Amazonia S.A. PN................................................. 1,730,762
579,293,000 Refrigeracao Parana S.A. PN................................................... 1,537,973
64,000 Refrigeracao Parana S.A. ADR.................................................. 848,000
1,145,620,000 Tec Toy Industria de Brinquedos PN*........................................... 528,960
-------------
6,012,399
-------------
ELECTRIC DISTRIBUTION-7.15%
1,305,500 Centrais Eletricas de Santa Catarin PN*....................................... 958,970
95,997,595 Companhia Energetica de Minas Gerais PN....................................... 2,125,557
38,154,041 Companhia Paulista de Forca e Luz ON*......................................... 2,182,061
-------------
5,266,588
-------------
ELECTRIC GENERATION-10.28%
25,138,500 Centrais Eletricas Brasileiras S.A. ON........................................ 7,570,963
-------------
FOOD & BEVERAGES-6.82%
57,495 Companhia Cervejaria Brahma ON, Warrants...................................... 22,022
5,816,922 Companhia Cervejaria Brahma PN................................................ 2,380,607
737,029 Companhia Cervejaria Brahma PN, Warrants...................................... 143,082
<CAPTION>
VALUE
NO. OF SHARES DESCRIPTION (NOTE A)
- ------------- -------------------------------------------------------------------------------- -------------
<C> <S> <C>
FOOD & BEVERAGES (CONTINUED)
2,020,000 Moinho Santista Alimentos S.A. ON............................................. $ 2,013,747
673,000 S.A. Moinho Santista Industrias Gerais PN..................................... 466,110
-------------
5,025,568
-------------
HOLDING COMPANIES-8.16%
9,795,000 Brasmotor S.A. PN............................................................. 2,436,030
5,772,800 Investimentos Itau S.A. PN.................................................... 3,574,114
-------------
6,010,144
-------------
MINING-1.91%
8,529,000 Companhia Vale do Rio Doce PN................................................. 1,405,166
-------------
PAPER AND PULP-2.57%
166,000 Companhia Suzano de Papel e Celulose PN*...................................... 989,433
1,430,000 Eucatex S.A. Industria e Comercio PN*......................................... 202,581
20,861,609 Industrias de Papel Simao PN.................................................. 703,815
-------------
1,895,829
-------------
PETROCHEMICALS-7.64%
834,000 Copene Petroquimica do Nordeste S.A. PN....................................... 535,608
49,006,933 Petroleo Brasileiro S.A. PN................................................... 5,091,229
-------------
5,626,837
-------------
RETAIL-4.67%
37,162,776 Lojas Americanas S.A. ON...................................................... 799,451
94,097,078 Lojas Americanas S.A. PN...................................................... 2,221,716
32,500 Makro Atacadista S.A. GDR..................................................... 349,375
4,293,000 Mesbla S.A. PN*............................................................... 67,574
-------------
3,438,116
-------------
STEEL-6.36%
50,150,000 Companhia Siderurgicas Nacional ON*........................................... 1,347,753
1,053,000 Mannesmann S.A. ON*........................................................... 287,297
</TABLE>
6
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
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SCHEDULE OF INVESTMENTS (unaudited) (continued)
<TABLE>
<CAPTION>
VALUE
NO. OF SHARES DESCRIPTION (NOTE A)
- ------------- -------------------------------------------------------------------------------- -------------
<C> <S> <C>
STEEL (CONTINUED)
2,174,440,000 Usinas Siderurgicas de Minas Gerais S.A. PN................................... $ 2,373,071
62,000 Usinas Siderurgicas de Minas Gerais S.A. ADR#................................. 682,000
-------------
4,690,121
-------------
TELECOMMUNICATIONS-15.11%
34,321,000 Telecomunicacoes Brasileiras S.A. ON.......................................... 1,332,575
161,754,240 Telecomunicacoes Brasileiras S.A. PN.......................................... 7,451,619
2,063,589 Telecomunicacoes de Sao Paulo S.A. PN......................................... 331,318
4,317,709 Telecomunicacoes do Parana S.A. PN*........................................... 1,540,502
1,670,000 Telecomunicacoes do Rio de Janeiro S.A. ON.................................... 160,016
3,777,200 Telecomunicacoes do Rio de Janeiro S.A. PN.................................... 313,132
-------------
11,129,162
-------------
TEXTILES-5.15%
115,254,000 Artex S.A. Fabrica de Artefatos Texteis PN*................................... 423,306
10,433,100 Companhia Tecidos Norte de Minas S.A. PN...................................... 3,372,050
-------------
3,795,356
-------------
TRANSPORTATION-1.26%
5,068,700 Marcopolo S.A. PN*............................................................ 930,871
-------------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES (Cost $73,096,465)..................... 70,775,754
-------------
<CAPTION>
PAR VALUE
(000) DESCRIPTION (NOTE A)
- ------------- -------------------------------------------------------------------------------- -------------
<C> <S> <C>
SHORT-TERM INVESTMENTS-4.30%
U.S.$ 3,168 GRAND CAYMAN
Brown Brothers Harriman & Co. Call Account 4.750%** (Cost $3,168,000).......... $ 3,168,000
-------------
TOTAL INVESTMENTS (Cost $76,264,465)
(Notes A, D)-100.36%........................................................... 73,943,754
-------------
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-(0.36%).......................... (265,617)
-------------
NET ASSETS-100.00%.............................................................. $ 73,678,137
-------------
-------------
</TABLE>
- ------------------------------
* Security is non-income producing.
** Variable rate account. Rates reset on a daily basis; amounts available
generally on the same business day.
# SEC Rule 144A security. Such securities are traded only among "qualified
institutional buyers."
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
U.S.$ United States dollars.
See accompanying notes to financial statements.
7
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THE BRAZILIAN EQUITY FUND, INC.
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STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $76,264,465) (Note A) $73,943,754
Cash 214
Dividends receivable 223,780
Prepaid expenses 16,621
Unamortized organizational costs (Note A) 15,326
-----------
Total Assets 74,199,695
-----------
LIABILITIES:
Payables:
Due to adviser (Note B) 176,830
Due to administrators (Note B) 40,167
Investments purchased 214,954
Other accrued expenses 89,607
-----------
Total Liabilities 521,558
-----------
NET ASSETS (applicable to 4,619,271 shares of common stock
outstanding) (Note C) $73,678,137
-----------
-----------
NET ASSET VALUE PER SHARE ($73,678,137 DIVIDED BY 4,619,271) $15.95
-----------
-----------
Net assets consist of:
Capital stock, $0.001 par value; 4,619,271 shares issued and
outstanding (100,000,000 shares authorized) $ 4,619
Paid-in capital 63,727,324
Undistributed net investment income 280,780
Accumulated realized gains on investments and foreign currency
related transactions 11,993,534
Net unrealized depreciation in value of investments and
translation of other assets and liabilities denominated in
foreign currency (2,328,120)
-----------
Net assets applicable to shares outstanding $73,678,137
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
8
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THE BRAZILIAN EQUITY FUND, INC.
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income (Note A):
Dividends $ 1,013,961
Interest 11,276
Less: Foreign taxes withheld (155,385)
-----------
Total Investment Income 869,852
-----------
Expenses:
Investment advisory fees (Note B) 466,405
Administration fees (Note B) 84,537
Accounting fees 31,024
Printing 22,625
Audit fees 21,720
Custodian fees (Note B) 19,527
Directors' fees (Note B) 18,100
Legal fees 17,670
Transfer agent fees 14,480
Other 14,207
-----------
Total Expenses 710,295
-----------
Less: Fees waived by investment adviser (Note B) (121,223)
-----------
Net Expenses 589,072
-----------
Net Investment Income 280,780
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY RELATED TRANSACTIONS:
Net realized gain/(loss) from:
Investments 1,830,242
Foreign currency related transactions (29,101)
Net change in unrealized depreciation in value of investments
and translation of other assets and liabilities denominated in
foreign currency 11,440,088
-----------
Net realized and unrealized gain on investments and foreign
currency related transactions 13,241,229
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,522,009
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
9
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THE BRAZILIAN EQUITY FUND, INC.
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STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED SEPTEMBER 30, 1995 ENDED
(UNAUDITED) MARCH 31, 1995
------------------------ --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income/(loss) $ 280,780 $ (566,466)
Net realized gain on investments and foreign currency related
transactions 1,801,141 30,121,431
Net change in unrealized appreciation/(depreciation) in value of
investments and translation of other assets and liabilities
denominated in foreign currency 11,440,088 (47,668,256)
------------ --------------
Net increase/(decrease) in net assets resulting from operations 13,522,009 (18,113,291)
------------ --------------
Dividends and distributions to shareholders:
In excess of net investment income ($0.00 and $0.03 per share,
respectively) -- (138,215)
From net realized gain on investments ($0.00 and $3.83 per
share, respectively) -- (17,645,457)
------------ --------------
-- (17,783,672)
------------ --------------
Capital share transactions (Note C):
Proceeds from 12,102 shares issued in reinvestment of dividends -- 232,844
------------ --------------
Total increase/(decrease) in net assets 13,522,009 (35,664,119)
------------ --------------
NET ASSETS:
Beginning of period 60,156,128 95,820,247
------------ --------------
End of period (including undistributed net investment income of
$280,780 and $0, respectively) $ 73,678,137 $ 60,156,128
------------ --------------
------------ --------------
</TABLE>
See accompanying notes to financial statements.
10
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THE BRAZILIAN EQUITY FUND, INC.
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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE SIX APRIL 10,
MONTHS ENDED FOR THE YEAR ENDED 1992*
SEPTEMBER 30, MARCH 31, THROUGH
1995 --------------------- MARCH 31,
(UNAUDITED) 1995 1994 1993
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $13.02 $20.80 $11.83 $13.79**
------------- --------- --------- ---------
Net investment income/(loss) 0.06 (0.12) (0.04) 0.06
Net realized and unrealized
gain/(loss) on investments and
foreign currency related
transactions 2.87 (3.80) 9.09 (1.99)
------------- --------- --------- ---------
Net increase/(decrease) in net
assets resulting from operations 2.93 (3.92) 9.05 (1.93)
------------- --------- --------- ---------
Dividends and distributions to
shareholders:
In excess of net investment
income -- (0.03) -- --
From net investment income -- -- (0.08) (0.03)
From net realized gain on
investments and foreign currency
related transactions -- (3.83) -- --
------------- --------- --------- ---------
Total distributions to shareholders -- (3.86) (0.08) (0.03)
------------- --------- --------- ---------
Net asset value, end of period $15.95 $13.02 $20.80 $11.83
------------- --------- --------- ---------
------------- --------- --------- ---------
Market value, end of period $15.625 $14.75 $19.00 $11.25
------------- --------- --------- ---------
------------- --------- --------- ---------
Total investment return (a) 5.93% (6.79)% 69.55% (19.16)%
------------- --------- --------- ---------
------------- --------- --------- ---------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) $ 73,678 $ 60,156 $95,820 $54,493
Ratio of expenses to average net
assets
after investment adviser fee
waiver 1.70%(c) 1.86%# 2.05%# 2.45%(c)
Ratio of expenses to average net
assets
before investment adviser fee
waiver 2.05%(c) 2.13%# 2.05%# 2.45%(c)
Ratio of net investment
income/(loss) to average net
assets after investment adviser
fee waiver 0.81%(c) (0.62)% (0.28)% 0.61%(c)
Ratio of net investment
income/(loss) to average net
assets before investment adviser
fee waiver 0.46%(c) (0.89)% (0.28)% 0.61%(c)
Portfolio turnover 12%(b) 69% 73% 50%(b)
</TABLE>
- ------------------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting discount
of $1.05 per share offering expenses of $0.16 per share.
# For the calendar year ending December 31, 1994, the Brazilian Congress
imposed a 0.25% withholding tax on financial transactions. If such tax had
not been imposed, the ratio of expenses to average net assets would have been
1.73% for the year ended March 31, 1995 and 2.02% for the year ended March
31, 1994 after investment adviser fee waiver and 2.00% for the year ended
March 31, 1995 and 2.02% for the year ended March 31, 1994 before investment
adviser fee waiver.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions or initial underwriting discounts and has not been annualized.
(b) Not annualized.
(c) Annualized.
See accompanying notes to financial statements.
11
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
- --------------------------------------
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
NOTE A. The Brazilian Equity Fund, Inc. (the "Fund") was incorporated in
Maryland on February 10, 1992 and commenced operations on April 10, 1992. The
Fund is registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company. 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 or lacking any sales, 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). Securities
that are traded over-the-counter are valued at the mean between the current bid
and asked prices, if available. All other securities and assets are taken at
fair value as determined in good faith by or under the direction of the Board of
Directors. Short-term investments having a maturity of 60 days or less are
valued on the basis of amortized cost. The net asset value per share of the Fund
is calculated weekly and at the end of each month.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: 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 which will be sufficient to
relieve it from all or substantially all federal income and excise taxes.
No Brazilian income tax is imposed on capital gains. A 15% withholding tax is
imposed on dividends and interest from stock market investments. The Fund
intends to elect, for U.S. federal income tax purposes, to treat certain foreign
taxes paid by the Fund that can be treated as income taxes under U.S. income tax
principles as paid by its shareholders.
FOREIGN CURRENCY TRANSLATIONS: 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, income and expenses at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the rate of exchange prevailing on the respective dates of such
transactions.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to change in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment transactions balances. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations, with such amount categorized as
foreign exchange gain or loss for both financial reporting and income tax
reporting purposes.
Net currency gains from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currencies.
12
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
Net realized foreign exchange losses of $29,101 represent foreign exchange gains
and losses from sales and maturities of debt securities, holdings of foreign
currencies, transactions in forward foreign currency contracts, exchange gains
or losses realized between the trade date and settlement dates on security
transactions, and the difference between the amounts of interest and dividends
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received.
The Fund reports certain foreign currency related transactions and foreign taxes
withheld on security transactions as components of realized gains for financial
reporting purposes, whereas such components are treated as ordinary income for
U.S. federal income tax purposes.
DISTRIBUTION OF INCOME AND GAINS: The Fund intends to distribute to
shareholders, at least annually, substantially all of its net investment income
and expects to distribute annually any net long-term capital gains in excess of
net short-term capital losses. An additional distribution may be made to the
extent necessary to avoid the payment of a 4% U.S. federal excise tax.
Realized capital gains differ for financial statement and tax purposes primarily
due to the deferral of wash sale losses.
The character of distributions made from net investment income or net realized
foreign currency related transactions may differ from their ultimate
characterization for federal income tax purposes due to generally accepted
accounting principles/tax differences in the character of income and expense
recognition.
OTHER: Costs incurred by the Fund in connection with its organization of $50,000
are being amortized on a straight line basis over a five-year period beginning
at the commencement of operations of the Fund.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
The Brazilian securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. Consequently,
acquisition and disposition of securities by the Fund may be inhibited. A
significant proportion of the aggregate market value of equity securities listed
on the Brazilian Exchanges are held by a small number of investors and are not
publicly traded. This may limit the number of shares available for acquisition
by the Fund.
Investments in Brazil may involve certain considerations and risks not typically
associated with investments in the United States including the possibility of
future political and economic developments and the level of Brazilian
governmental supervision and regulation of its securities markets.
NOTE B. BEA Associates ("BEA") serves as the Fund's investment adviser. As
compensation for its investment advisory services, BEA receives from the Fund an
annual fee, calculated weekly and paid quarterly, equal to 1.35% of the first
$100 million of the Fund's average weekly net assets and 1.05% of average weekly
net assets in excess of $100 million. In addition, BEA receives from the Fund an
administration fee, which represents a reimbursement of certain Fund expenses.
For the six months ended September 30, 1995, the advisory and administration
fees amounted to $345,182 and $1,810, respectively.
Garantia Administracao de Recursos S.A. ("Garantia") and Patrimonio Planejamento
Financeiro Ltda. ("Patrimonio") served as the Fund's sub-advisers. In return for
its services, Garantia was paid a fee, out of the advisory fee payable to BEA,
computed and paid quarterly at an annual rate of 0.25% of the Fund's
13
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THE BRAZILIAN EQUITY FUND, INC.
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
average weekly net assets. Patrimonio was paid a fee for its services, out of
the advisory fee payable to BEA, computed and paid quarterly at an annual rate
of 0.10% of the Fund's average weekly net assets. Effective June 21, 1994 and
August 15, 1994, Garantia and Patrimonio, respectively, resigned as sub-advisers
to the Fund. BEA has voluntarily elected to waive $121,223 in investment
advisory fees that would have been paid to Garantia and Patrimonio during the
six months ended September 30, 1995.
Through August 6, 1995, Mitchell Hutchins Assets Management, Inc. ("Mitchell
Hutchins") served as the Fund's U.S. administrator. The Fund paid Mitchell
Hutchins a monthly fee for its services computed at an annual rate of 0.15% of
the Fund's average weekly net assets. For the period April 1, 1995 through
August 6, 1995, Mitchell Hutchins earned $35,863 for administrative services.
Effective August 7, 1995, Bear Stearns Funds Management Inc. ("BSFM") serves as
the Fund's U.S. administrator. The Fund pays BSFM a monthly fee that is computed
weekly at an annual rate of 0.10% of the first $100 million of the Fund's
average net assets and 0.08% of amounts in excess of $100 million. For the
period August 7, 1995 through September 30, 1995, BSFM earned $9,855 for
administrative services.
Through June 20, 1995, Banco de Investimentos Garantia S.A. ("Banco Garantia")
served as the Fund's Brazilian administrator. For its services, Banco Garantia
was paid an annual fee by the Fund equal to 0.05% of the Fund's average weekly
net assets invested in Brazil. For the period April 1, 1995 through June 20,
1995, Banco Garantia earned $14,172 for administrative services.
Effective June 21, 1995, Banco de Boston serves as the Fund's Brazilian
administrator. Banco de Boston is paid for its services a quarterly fee based on
an annual rate of 0.12% of the average month-end assets of the Fund held in
Brazil. For the period June 21, 1995 through September 30, 1995, Banco de Boston
earned $22,837 for administrative services.
The Fund pays each of its Directors who is not a director, officer or employee
of BEA, the administrator or any affiliate thereof an annual fee of $5,000 plus
$500 for each Board of Directors meeting attended. In addition, the Fund will
reimburse the Directors for travel and out-of-pocket expenses incurred in
connection with Board of Directors meetings.
Through June 20, 1995, Banco Bradesco de Investimento S.A. served as the
custodian of the Fund's foreign assets and PNC Bank, N.A. served as the
custodian of the Fund's assets in the United States. Effective June 21, 1995,
Brown Brothers Harriman & Co. serves as the custodian for all of the Fund's U.S.
and foreign assets.
Through September 4, 1995, PNC Bank, N.A. served as the Fund's transfer agent
and registrar. Effective September 5, 1995, The First National Bank of Boston
serves as the Fund's transfer agent and registrar.
NOTE C. The authorized capital stock of the Fund is 100,000,000 shares of common
stock, $0.001 par value. Of the 4,619,271 shares outstanding at September 30,
1995, BEA owned 7,169 shares.
NOTE D. For U.S. federal income tax purposes, the cost of securities owned at
September 30, 1995 was $76,412,518. Accordingly, the net unrealized depreciation
of investments (including investments denominated in foreign currency) of
$2,468,764, was composed of gross appreciation of $10,619,646 for those
investments having an excess of value over cost and gross depreciation of
$13,088,410 for those investments having an excess of cost over value.
14
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
Purchases and sales of securities, other than short-term obligations, aggregated
$8,021,538 and $9,954,881, respectively, for the six months ended September 30,
1995.
NOTE E. The Fund, along with 15 other U.S. regulated investment companies for
which BEA serves as investment adviser, has a credit agreement with The First
National Bank of Boston. The agreement provides that each fund is permitted to
borrow an amount equal to the lesser of $50,000,000 or 25% of the net assets of
the fund. However, at no time shall the aggregate outstanding principal amount
of all loans to any of the 16 funds exceed $50,000,000. The line of credit will
bear interest at (i) the greater of the bank's prime rate or the Federal Funds
Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The
Fund had no amounts outstanding under the credit agreement at September 30,
1995.
NOTE F. Quarterly Results of Operations:
<TABLE>
<CAPTION>
NET GAIN/(LOSS) NET INCREASE/
ON INVESTMENT AND (DECREASE)
FOREIGN CURRENCY IN NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING FROM
INCOME INCOME/(LOSS) TRANSACTIONS OPERATIONS MARKET PRICE
---------------- ---------------- ------------------- ------------------- ON NYSE
TOTAL PER TOTAL PER TOTAL PER TOTAL PER -----------------
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ------------------------- --------- ----- ------ ------- --------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1995............ $ 576 $0.12 $ 280 $ 0.06 $ 4,718 $ 1.02 $ 4,998 $ 1.08 $17.625 $14.125
September 30, 1995....... 294 0.07 1 0.00 8,523 1.85 8,524 1.85 16.625 14.625
--------- ----- ------ ------- --------- ------- --------- -------
Totals................... $ 870 $0.19 $ 281 $ 0.06 $ 13,241 $ 2.87 $ 13,522 $ 2.93
--------- ----- ------ ------- --------- ------- --------- -------
--------- ----- ------ ------- --------- ------- --------- -------
June 30, 1994............ $ 321 $0.07 $ (70) $ (0.02) $ (19,142) $ (4.16) $ (19,212) $ (4.18) $21.125 $14.750
September 30, 1994....... 515 0.11 (8) 0.00 49,252 10.69 49,244 10.69 27.000 18.500
December 31, 1994........ 19 0.00 (477) (0.10) (16,224) (3.52) (16,701) (3.62) 27.500 18.625
March 31, 1995........... 295 0.07 (11) 0.00 (31,433) (6.81) (31,444) (6.81) 21.125 11.000
--------- ----- ------ ------- --------- ------- --------- -------
Totals................... $1,150 $0.25 $ (566) $ (0.12) $ (17,547) $ (3.80) $ (18,113) $ (3.92)
--------- ----- ------ ------- --------- ------- --------- -------
--------- ----- ------ ------- --------- ------- --------- -------
June 30, 1993............ $ 143 $0.03 $ (206) $ (0.04) $ 8,578 $ 1.86 $ 8,372 $ 1.82 $13.875 $10.000
September 30, 1993....... 449 0.10 147 0.03 8,134 1.77 8,281 1.80 15.250 11.500
December 31, 1993........ 277 0.06 (64) (0.01) 1,794 0.39 1,730 0.38 16.125 13.250
March 31, 1994........... 395 0.08 (73) (0.02) 23,364 5.07 23,291 5.05 26.250 14.750
--------- ----- ------ ------- --------- ------- --------- -------
Totals................... $1,264 $0.27 $ (196) $ (0.04) $ 41,870 $ 9.09 $ 41,674 $ 9.05
--------- ----- ------ ------- --------- ------- --------- -------
--------- ----- ------ ------- --------- ------- --------- -------
</TABLE>
15
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THE BRAZILIAN EQUITY FUND, INC.
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RESULTS OF ANNUAL MEETING OF SHAREHOLDERS
(unaudited)
On July 25, 1995, the Fund's Annual Meeting of Shareholders was held and the
following matters were voted upon:
(1)To re-elect three directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR VOTES FOR VOTES AGAINST VOTES WITHHELD NON-VOTES
- ----------------------------------------------- ---------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
David Garlow................................... 2,985,351 -- 38,242 1,595,678
George Landau.................................. 2,985,441 -- 38,152 1,595,678
Daniel Sigg.................................... 2,984,551 -- 39,042 1,595,678
</TABLE>
In addition to the directors elected at the meeting, Emilio Bassini, John Bult,
James Cattano and Peter Gordon continue to serve as directors of the Fund.
(2)To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the fiscal year ending March 31, 1996.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD NON-VOTES
- ---------- --------------- --------------- ----------
<S> <C> <C> <C>
3,009,812 4,767 9,014 1,595,678
</TABLE>
16
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THE BRAZILIAN EQUITY FUND, INC.
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DESCRIPTION OF THE FUND'S DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
Pursuant to The Brazilian Equity Fund, Inc. (the "Fund") Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have
elected, unless The First National Bank of Boston, the Fund's transfer agent, as
the Plan Agent (the "Plan Agent"), 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. 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 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 Fund, at the address set forth
below. Dividends and distributions with respect to shares registered in the name
of a broker-dealer or other nominee (i.e., in "street name") will be reinvested
under the Plan unless such 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 concerning participation in the Plan.
Certain distributions of cash attributable to the dividends paid to the Fund
that are derived from securities of Brazilian issuers are subject to taxes
payable by the Fund at the time amounts are remitted. Such taxes, if any, will
be borne by the Fund and allocated to all shareholders in proportion to their
interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares 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
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, participants in the Plan will receive shares of stock from
the Fund valued at the 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.
Participants in the Plan have the option of making additional cash payments to
the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment
in the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about February 15
and August 15 of each year. Any voluntary cash payments received more than 30
days prior to these dates will be returned by the Plan Agent and interest will
not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent,
17
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THE BRAZILIAN EQUITY FUND, INC.
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- --------------------------------------------------------------------------------
it is suggested that participants send in voluntary cash payments to be received
by the Plan Agent approximately 10 days before February 15 or August 15, as the
case may be. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before the payment is to be invested. A participant's tax basis in his shares
acquired through his optional investment right will equal his cash payments to
the Plan, including any cash payments used to pay brokerage commissions
allocable to his acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the 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 the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions payable in either stock or cash. The Plan Agent's fees for the
handling of reinvestment of such dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage charges with respect to shares
issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
or capital gains distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's common stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.
The Fund and the Plan Agent reserve the right to terminate the Plan as applied
to any voluntary cash payments made and any dividend or distribution paid
subsequent to notice of the termination sent to the members of the Plan at least
30 days before the semiannual contribution date, in the case of voluntary cash
payments, or the record date for dividends or distributions. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to members of the Plan. All
correspondence concerning the Plan should be directed to The First National Bank
of Boston, Investor Relations Department, P.O. Box 644, Mail Stop 45-02-09,
Boston, Massachusetts 02102-0644 or by telephone at 1-800-730-6001.
18
<PAGE>
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INVESTMENT ADVISER
BEA Associates
New York, New York
U.S. ADMINISTRATOR
Bear Stearns Funds Management Inc.
New York, New York
[LOGO]
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston
Boston, Massachusetts
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
This report, including the financial statements herein, is sent to the
shareholders of
THE BRAZILIAN EQUITY FUND, INC.
the Fund for their information. The financial information included herein is
taken from the records of the Fund without examination by independent
accountants SEMI-ANNUAL REPORT
who do not express an opinion thereon. It is not a prospectus, circular or
represenSEPTEMBER 30, 1995
tation intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in this report.
(UNAUDITED)
