<PAGE>
THE BRAZILIAN
EQUITY FUND, INC.
--------------------------------------
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................................................................... 1
Portfolio Summary........................................................................... 7
Schedule of Investments..................................................................... 8
Statement of Assets and Liabilities.........................................................10
Statement of Operations.....................................................................11
Statement of Changes in Net Assets..........................................................12
Financial Highlights........................................................................13
Notes to Financial Statements...............................................................14
Results of Annual Meeting of Shareholders...................................................17
Description of Dividend Reinvestment and Cash Purchase Plan.................................18
</TABLE>
PICTURED ON THE COVER IS A SCENIC NIGHT VIEW OF RIO DE JANEIRO, BRAZIL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
November 13, 1996
DEAR SHAREHOLDERS:
We are pleased to report on the activities of The Brazilian Equity Fund, Inc.
(the "Fund") for the six months ended September 30, 1996.
PERFORMANCE
The Fund successfully completed its initial offering on April 10, 1992 and began
operations with a net asset value ("NAV") of $13.79 per share. At September 30,
1996, the Fund's NAV was $15.21 per share, as compared to $14.18 on March 31,
1996. From inception through September 30, 1996, $6.18 per share was paid out in
dividends and distributions, representing a total return based on NAV of 69.0%
for the life of the Fund assuming participation in the rights offering, while
the total return of the Morgan Stanley Capital International Brazil Market Index
(the "Index") was 73.4%.
In the six months ending September 30, 1996, the Fund's total return, based on
NAV and assuming participation in the rights offering, was 17.6%. During the
same period, the Index rose by 16.6%.
PORTFOLIO DEVELOPMENTS
At September 30, 1996, the Fund's investments included $90.8 million in
Brazilian equity securities and $9.0 million in Brazilian debt instruments.
In August, the Fund completed a rights offering to existing shareholders. The
amount of shares offered pursuant to the rights offering was increased by 25% in
order to satisfy oversubscription requests. Approximately 1.9 million shares
were issued at a price of $11.09 per share to generate net proceeds of $20.6
million. We note that the offering represents one of the most successful recent
rights offerings for a closed-end fund.
POLITICAL/ECONOMIC COMMENTARY
THE REFORM PROCESS
The administration of President Fernando Henrique Cardoso remains committed to a
series of economic and political reforms whose enactment should greatly improve
the climate for Brazilian equities. Despite some bumps along the way, the reform
process appears to be on track.
The different reforms are directed at a variety of specific areas but have a
common ultimate goal: the substantial reduction of Brazil's fiscal (I.E.,
budget) deficit as a percentage of its gross domestic product (GDP). After
achieving a surplus in 1993 and 1994, the annual fiscal balance turned to a
deficit of 4.6% of GDP in 1995. We estimate that the deficit will improve to
3.7% of GDP in 1996, and the government's stated goal for 1997 is 2.5%.
Collectively, the reforms are referred to as structural or constitutional
reforms (because they require amendment of the Brazilian constitution). The most
prominent are ADMINISTRATIVE REFORM, which focuses on the reduction of the
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
bloated local, state and federal government payrolls; SOCIAL SECURITY REFORM,
whose goal is the restoration to financial health of Brazil's Social Security
program; and TAX REFORM, the badly needed simplification of Brazil's complex and
confusing tax system.
Deficit-reduction is considered essential to preserve the nation's extraordinary
economic gains of the last few years and pave the way for a brighter future.
Much is riding on its achievement, moreover: it would generate numerous benefits
for the economy as well as determine the ultimate success of Brazil's REAL Plan
for economic stabilization.
RE-ELECTION: THE KEY TO THE INVESTMENT ENVIRONMENT
The Brazilian constitution limits the tenure in office for members of the
executive branch at any level (I.E., president, state governors and mayors) to
one four-year term. Cardoso, who seeks a second term following the end of his
current term in 1998, is trying to overturn this restriction via the passage of
a constitutional amendment permitting re-election. The success or failure of the
amendment will have a direct impact on reform and, therefore, stock prices.
Given that Cardoso's accomplishments (E.G., reigning in runaway hyperinflation
and, more generally, achieving a level of economic stability unattained by his
predecessors) are the main stimulus for the influx of global investment capital
to Brazil since 1994, investors would take his re-election as a clear signal
that the positive environment for Brazilian securities would remain in place.
Should the amendment fail, however, a great sense of uncertainty would likely
pervade the markets which could induce investors to avoid new activity, reduce
existing positions or depart entirely.
Local polls indicate that the business community strongly supports re-election.
Analysts, furthermore, report that the consensus view among equity investors is
that a second Cardoso term is fundamental to the completion of reform, since it
is unlikely that the process can be concluded within one term. We agree.
PORTFOLIO STRATEGY
We have recently begun to consider the repositioning of the portfolio in
anticipation of improved conditions for certain industry sectors. Specifically,
it seems appropriate to shift assets away from most makers of consumer goods and
redirect them into cyclical, more economically sensitive companies (E.G., steel,
chemicals).
This view is based on two factors:
1) Many consumer-oriented stocks have greatly appreciated already thus far in
the year, indicating the prudence of profit-taking. We also feel that current
economic conditions offer such companies relatively little flexibility to raise
prices.
2) Cyclicals should be major beneficiaries both of the current upturn in auto
sales and their own cost-reduction programs. Stocks in this sector, moreover,
are trading at appealing valuation levels.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
Our movement away from consumer stocks, incidentally, does not reflect any
weakening in our belief that the shift to a more consumer-oriented economy is a
secular growth theme. We retain the belief, but simply find more attractive
opportunities elsewhere at present.
We remain enthusiastic about former state-controlled monopolies, particularly
electric utilities and telecommunications. These companies continue to enjoy
favorable prospects due to an ongoing governmental commitment to privatization,
reasonable tariff (i.e., rate) increases, infrastructure development and an
emerging focus on boosting competitiveness in a deregulating environment.
To illustrate our stock selection process, we'd like to highlight three of the
Fund's largest holdings.
COMPANHIA ENERGETICA DE MINAS GERAIS
Companhia Energetica de Minas Gerais ("Cemig") is the utility company that
provides 96% of the electricity required in the Brazilian state of Minas Gerais
(pronounced MEEnahs zheRAZE). It derives virtually all of its energy from
hydroelectric sources.
Numerous factors enhance Cemig's investment appeal:
- - Location in Minas Gerais helps to create a favorable business climate due to
the state's stable, well-managed and financially healthy government; the
strong presence of vital industrial and agricultural sectors; and an abundance
of natural resources. (Water is so abundant, in fact, that the state has
almost unparalleled hydrological potential.)
- - It offers an unusually favorable combination of below-average operating
expenses, above-average productivity, high-quality management and low debt.
Not only does this help to protect the company against inflation and
interest-rate risks, but it also positions the company to compete in an
increasingly deregulated business.
- - Its sales mix is moving away from industrial customers (55.5% of sales in the
first half of 1996) and toward the much higher-margin residential and
commercial categories.
- - Within its industrial customer base, cyclical sectors (I.E., steel, alloys,
nonferrous metals, chemicals and cement) are prevalent. This fits nicely with
our expectation of an upcoming surge in cyclicals' profitability.
- - Brazil's electricity sector is being restructured so as to become more
profitable and interregional in nature. In this context, Cemig's surplus
generation capacity and vast hydroelectric resources should develop into
increasingly valuable assets.
Our confidence in Cemig's appreciation potential is reflected in our
more-than-doubling of the Fund's total share holdings in each of the last two
six-month periods. In the first such period, we did so even though the stock was
already the Fund's largest position (which it continues to be). Cemig has
rewarded our conviction with very strong performance thus far in 1996.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
GLOBEX UTILIDADES
A retailer that we especially like is Globex Utilidades ("Globex"). Globex is
Brazil's largest seller of home appliances and electronics. We have added it to
the portfolio only since its initial public offering in May, yet we consider its
potential so strong that we have made it the Fund's fourth-largest position.
Here is a brief summary of why we like Globex and are inclined to maintain it in
the portfolio on a long-term basis:
- - IMPROVED CONSUMER ENVIRONMENT. The dramatic reduction both of interest rates
and hyperinflation achieved by the REAL Plan has raised standards of living
and helped to unleash substantial pent-up consumer demand. Another notable
positive in this regard is the relaxation of restrictions on personal
borrowing.
- - COMPETITIVENESS. As measured by several standards of efficiency, productivity
and profitability, Globex compares very favorably with most of its
competitors.
- - SOUND BUSINESS PLAN. Unlike many retailers, Globex does not plan to grow via
the aggressive opening of new stores. Instead, it is carefully managing its
growth by focusing on the modernization of its existing stores so as to
maximize their efficiency and sales potential. This should help to reduce
earnings volatility and raise profits.
- - WELL-MANAGED CREDIT BUSINESS. Because they sell relatively big-ticket items to
non-affluent customers, Globex and its competitors try to stimulate sales by
offering attractive borrowing terms. Since such credit financing can be more
profitable than product sales, furthermore, retailers try to maximize their
use of it. Globex takes a conservative approach to its credit business, yet
earns one of the industry's highest credit margins. It is also committed to
raising the credit proportion of its sales, which currently is about 75%.
- - RAPIDLY GROWING PRODUCT SALES. Unit sales of Globex's major products are
currently growing at rates exceeding 40%, placing them among the most dynamic
sectors of the Brazilian economy. Rising demand and low penetration among the
population suggest that this trend should persist well into the future.
DIXIE TOGA S.A.
Every so often, we encounter companies whose profile does not easily fit within
our investment themes, yet offer appreciation potential that we consider
compellingly attractive regardless. One such company held by the Fund is Dixie
Toga S.A. ("DT"). Latin America's premier packaging company (both in terms of
size and sophistication), DT also is the only pure equity play on the region's
flexible and rigid packaging sectors.
DT is the product of the recent mergers of three prominent Brazilian packaging
companies whose roots stretch back several decades. Its main business lines are
flexible, semi-rigid and rigid packaging for the food, beverage, hygiene and
cleaning materials industries; disposable polystyrene products and hygiene; and
cleaning products for institutional customers.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
A variety of factors makes DT stock a highly appealing growth vehicle:
- - STRONG INDUSTRY PROSPECTS. Analysts project sales of flexible packaging in
Latin America to grow at double-digit rates over the next few years.
Particularly in Brazil, the industry should benefit from lower inflation,
rising disposable income and increasing direct investment by foreign
multinationals.
- - GROWTH VIA ACQUISITION. Although DT already is Latin America's biggest
packaging manufacturer, it intends to widen its product lines via
acquisitions. With the industry fairly fragmented and many companies still
hurting from harsh economic conditions, DT's potential acquisition universe is
large.
- - GEOGRAPHIC REACH. Most of DT's sales occur in Brazil, but the company is in
the process of expanding into other countries. It took a big step in this
direction with the late-1995 acquisition of American Plast. In addition to
being the dominant maker of rigid packaging in Argentina, American Plast has
commanding market shares in Paraguay and Uruguay.
- - STANDOUT AMONG BRAZILIAN COMPANIES. DT is unique among Brazilian companies in
its aggregation of several attractive characteristics. These include its
historical commitment to maximizing shareholder value; utilization of
state-of-the-art technology; financial soundness; status as lowest-cost
supplier; and high level of competitiveness according to international
standards.
- - PROXY FOR MULTINATIONALS' PENETRATION OF LATIN AMERICA. Since DT is the
exclusive Brazilian supplier of various products to McDonald's, Kentucky Fried
Chicken and Arby's and a major supplier to companies like Unilever, Procter &
Gamble and Nestle, its stock is an excellent way to capitalize on the growing
Latin American direct investment programs of some of the world's largest
companies.
We have owned DT for some time now and feel very comfortable in retaining it as
one of the portfolio's core, long-term holdings.
OUTLOOK
Our outlook for Brazilian equities is optimistic. Macroeconomic positives
include a trend toward lower interest rates, an end to hyperinflation, rising
disposable income, easing of personal credit and the highest foreign exchange
reserves (about $60 billion) in Latin America.
We believe that, given the numerous obstacles to be overcome, President Cardoso
is doing an excellent job. The passage of his re-election amendment would go far
in maintaining the feeling of stability he has instilled among Brazilians and
investors worldwide.
1997 should be an exciting time for Brazil. We expect the economy to continue to
improve. Much privatization both on the federal and state levels should take
place, meaning that equity investors will have a selection of fresh
opportunities. Most important, we are optimistic about the prospects for
structural reform, whose enactment would be a milestone in Brazil's history. In
short, we believe that the future bodes very well for long-term investment in
Brazilian equities, and hope to enable the Fund to reap the resulting benefits.
- --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
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 Program (the "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 shareholders a voluntary Cash
Purchase Plan. The Plan and Cash Purchase Plan are described on pages 18-19 of
this report.
In closing, we would like to take this opportunity to express our appreciation
to shareholders for exhibiting their confidence in the Fund by their strong
response to the rights offering. As always, please feel free to forward your
questions and comments to us.
Respectfully,
[SIG]
Richard Watt
Chief Investment Officer*
- --------------------------------------------------------------------------------
* Richard Watt, who is a Managing Director of BEA Associates, is primarily
responsible for management of the Fund's assets. Mr. Watt has served the Fund in
such capacity since August 15, 1995. 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
Investments in London, where he was responsible for research, analysis and
trading of equities in Latin America and other regions. Mr. Watt is a Director,
Senior Vice President and Chief Investment Officer of the Fund and is also a
Director, Senior Vice President and Investment Officer of The Emerging Markets
Infrastructure Fund, Inc., The Emerging Markets Telecommunications Fund, Inc.
and The Latin America Equity Fund, Inc. He is also the Senior Vice President and
Investment Officer of The Chile Fund, Inc. and The Latin America Investment
Fund, Inc.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
PORTFOLIO SUMMARY - AS OF SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
09/30/96 3/31/96
------- -------
Banking 4.99% 4.76%
Capital Goods 1.68% 3.93%
Chemicals 1.70% 2.08%
Consumer Goods 7.49% 12.79%
Electric Distribution 20.85% 16.82%
Electric Generation 0.65% 8.24%
Food & Beverages 7.15% 8.34%
Holding Companies 8.03% 8.88%
Retail 6.74% 4.42%
Steel 2.30% 2.46%
Telecommunications 19.68% 15.04%
Textiles 5.06% 6.68%
Floating Rate Investment 9.01% 0.00%
Other 4.64% 4.43%
Cash and Other Assets 0.03% 1.13%
------- -------
100.00% 100.00%
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
1. Companhia Energetica de Minas Gerais Electric Distribution 13.0
- -----------------------------------------------------------------------------------------------------------------
2. Federal Republic of Brazil Interest Due Bond, Series A,
6.6875%, 01/01/01 Floating Rate Investment 9.0
- -----------------------------------------------------------------------------------------------------------------
3. Telecomunicacoes Brasileiras S.A. Telecommunications 6.4
- -----------------------------------------------------------------------------------------------------------------
4. Globex Utilidades Retail 5.9
- -----------------------------------------------------------------------------------------------------------------
5. Telecomunicacoes do Rio de Janeiro S.A. Telecommunications 5.4
- -----------------------------------------------------------------------------------------------------------------
6. Investimentos Itau S.A. Holding Companies 5.3
- -----------------------------------------------------------------------------------------------------------------
7. Banco Bradesco S.A. Banking 5.0
- -----------------------------------------------------------------------------------------------------------------
8. Dixie Toga S.A. Consumer Goods 4.4
- -----------------------------------------------------------------------------------------------------------------
9. Telecomunicacoes de Minas Gerais S.A. Telecommunications 4.3
- -----------------------------------------------------------------------------------------------------------------
10. Companhia Paulista de Forca e Luz Electric Distribution 4.3
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- -----------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-90.96%
AUTO PARTS-0.41%
Metal Leve S.A. Industria
e Comercio PN........... 43,900,000 $ 404,153
-----------
BANKING-4.99%
Banco Bradesco S.A. PN... 584,429,121 4,979,710
-----------
BUSINESS SERVICES-1.53%
Multibras da Amazonia
S.A. PN................. 987,000 1,527,310
-----------
CAPITAL GOODS-1.68%
Trafo Equipamentos
Electricos S.A. PN+..... 986,205 1,680,620
-----------
CHEMICALS-1.70%
S.A. White Martins ON.... 1,197,900,000 1,701,146
-----------
CONSUMER GOODS-7.49%
Dixie Toga S.A. PN....... 4,903,539 4,418,252
Refrigeracao Parana S.A.
ADR..................... 111,000 1,387,500
Refrigeracao Parana S.A.
PN...................... 664,093,000 1,632,509
Tec Toy Industria e
Comercio PN+............ 161,550,000 41,139
-----------
7,479,400
-----------
ELECTRIC DISTRIBUTION-20.85%
Centrais Eletricas de
Santa Catarin S.A.
GDR++................... 9,000 723,960
Centrais Eletricas de
Santa Catarin S.A.
PN+..................... 2,695,500 2,323,138
Centrais Eletricas de
Santa Catarin S.A., PN
Receipts+............... 620,071 497,976
Companhia Energetica de
Minas Gerais PN......... 433,561,595 12,951,010
Companhia Paulista de
Forca e Luz ON+......... 47,564,041 4,322,945
-----------
20,819,029
-----------
ELECTRIC GENERATION-0.65%
Companhia Energetica de
Sao Paulo ADR........... 72,000 648,000
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGES-7.15%
Brazil Fast Food
Corp.+*(a).............. 500,000 $ 1,856,250
Companhia Cervejaria
Brahma ON............... 57,495 35,588
Companhia Cervejaria
Brahma PN............... 2,013,951 1,252,514
Santista Alimentos S.A.
ON+..................... 2,020,000 3,996,278
-----------
7,140,630
-----------
HOLDING COMPANIES-8.03%
Brasmotor S.A. PN........ 7,355,000 2,686,893
Investimentos Itau S.A.
PN...................... 6,809,000 5,334,900
-----------
8,021,793
-----------
MANUFACTURING-0.98%
Elevadores Atlas S.A.+... 91,000 980,363
-----------
PAPER & PULP-0.41%
Industrias de Papel Simao
PN...................... 20,861,609 410,878
-----------
RETAIL-6.74%
Globex Utilidades PN..... 315,000 5,861,613
Lojas Americanas S.A.
PN...................... 51,097,078 865,755
-----------
6,727,368
-----------
STEEL-2.30%
Bardella Industrias S.A.
PN...................... 14,084 1,240,738
Companhia de Acos
Especiais Itabira PN.... 478,000,000 1,053,327
-----------
2,294,065
-----------
TELECOMMUNICATIONS-19.68%
Telecomunicacoes
Brasileiras S.A. ON..... 97,800,000 6,360,041
Telecomunicacoes de Minas
Gerais S.A. ON.......... 1,902,220 181,550
Telecomunicacoes de Minas
Gerais S.A. PNB......... 35,069,689 4,155,950
Telecomunicacoes do
Parana S.A. ON+......... 3,220,000 1,280,368
Telecomunicacoes do
Parana S.A. PN.......... 4,671,709 2,264,822
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
Telecomunicacoes do Rio
de Janeiro S.A. ON+..... 4,680,000 $ 513,354
Telecomunicacoes do Rio
de Janeiro S.A. PN+..... 43,397,200 4,892,040
-----------
19,648,125
-----------
TEXTILES-5.06%
Artex S.A. Fabrica de
Artefatos Texteis PN.... 115,254,000 80,143
Companhia Tecidos Norte
de Minas S.A. PN........ 5,453,100 1,976,051
Wembly Roupas S.A. PN.... 172,000,000 1,364,478
Wentex Textil S.A. PN+... 470,000 1,634,102
-----------
5,054,774
-----------
TRANSPORTATION-1.31%
Marcopolo S.A. PN........ 6,528,700 1,310,791
-----------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES
(Cost $72,474,323)..................... 90,828,155
-----------
<CAPTION>
Par Value
Description (000) (Note A)
- -----------------------------------------------------
<S> <C> <C>
FLOATING RATE INVESTMENT-9.01%
Federal Republic of
Brazil Interest Due
Bond, Series A, 6.6875%,
01/01/01 (Cost
$8,955,256)............. USD 9,328 $ 8,995,208
-----------
TOTAL INVESTMENTS-99.97%
(Cost $81,429,579) (Notes A,D)......... 99,823,363
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-0.03%...................... 32,366
-----------
NET ASSETS-100.00%...................... $99,855,729
-----------
-----------
- ---------------------------------------------------------
+ Security is non-income producing.
* Not readily marketable security.
++ SEC Rule 144A security. Such securities are traded
only among "qualified institutional buyers".
(a) With an additional 250,000 warrants attached,
expiring 08/27/01, with no market value.
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
PNB Preferred Shares, Class B.
USD United States Dollars.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $81,429,579)
(Note A)............................... $ 99,823,363
Cash (Note A)........................... 1,944,735
Receivables:
Interest.............................. 159,409
Dividends............................. 27,633
Prepaid expenses and other assets....... 19,265
------------
Total Assets............................ 101,974,405
------------
LIABILITIES
Payables:
Investments purchased................. 1,371,960
Advisory fee (Note B)................. 221,353
Administration fees (Note B).......... 15,946
Offering costs (Note C)............... 327,005
Other accrued expenses................ 182,412
------------
Total Liabilities....................... 2,118,676
------------
NET ASSETS (applicable to 6,564,840
shares of common stock outstanding)
(Note C)............................... $ 99,855,729
------------
------------
NET ASSET VALUE PER SHARE ($99,855,729
DIVIDED BY 6,564,840)................. $15.21
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
6,564,840 shares issued and outstanding
(100,000,000 shares authorized)........ $ 6,565
Paid-in capital......................... 84,174,088
Undistributed net investment income..... 802,104
Accumulated net realized loss on
investments and foreign currency
related transactions................... (3,520,740)
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 18,393,712
------------
Net assets applicable to shares
outstanding............................ $ 99,855,729
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 1,378,866
Interest.............................. 163,450
Less: Foreign taxes withheld.......... (185,199)
-----------
Total Investment Income............... 1,357,117
-----------
Expenses:
Investment advisory fees (Note B)..... 530,446
Custodian fees (Note B)............... 90,520
Administration fees (Note B).......... 41,123
Accounting fees....................... 32,427
Audit and legal fees.................. 32,090
Printing.............................. 22,875
Directors' fees....................... 18,300
Transfer agent fees................... 14,640
Insurance............................. 14,195
NYSE listing fees..................... 8,107
Amortization of organizational costs
(Note A)............................. 5,014
Other................................. 14,707
-----------
Total Expenses........................ 824,444
Less: Fee waivers (Note B)............ (134,102)
-----------
Net Expenses.......................... 690,342
-----------
Net Investment Income................. 666,775
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized loss from:
Investments........................... (517,429)
Foreign currency related
transactions......................... (160,028)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ 13,930,237
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 13,252,780
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $13,919,555
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Six Months Ended For the
September 30, 1996 Fiscal Year Ended
(unaudited) March 31, 1996
<S> <C> <C>
---------------------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 666,775 $ 268,217
Net realized loss on investments and
foreign currency related
transactions......................... (677,457) (2,913,782)
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. 13,930,237 18,231,683
------------------ ------------------
Net increase in net assets resulting
from operations.................... 13,919,555 15,586,118
------------------ ------------------
Distributions to shareholders:
Net realized gain on investments.... -- (10,254,782)
------------------ ------------------
Capital share transactions (Note C):
Proceeds from the sale of 1,930,835
shares issued in rights offering..... 20,636,740 --
Proceeds from 14,734 shares issued in
reinvestment of dividends............ -- 208,220
Offering costs charged to capital..... (396,250) --
------------------ ------------------
Net increase in net assets resulting
from capital share transactions.... 20,240,490 208,220
------------------ ------------------
Total increase in net assets........ 34,160,045 5,539,556
------------------ ------------------
NET ASSETS
Beginning of period..................... 65,695,684 60,156,128
------------------ ------------------
End of period (including undistributed
net investment income of $802,104 and
$135,329, respectively)................ $99,855,729 $ 65,695,684
------------------ ------------------
------------------ ------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
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 Six Months For the Fiscal Years Ended For the Period
Ended March 31, April 10, 1992*
September 30, 1996 ------------------------------- through
(unaudited) 1996 1995 1994 March 31, 1993
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $14.18 $13.02 $20.80 $11.83 $13.79**
---------- ------- ------- ------- ---------------
Net investment income/(loss)...................... 0.15+ 0.06 (0.12) (0.04) 0.06
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions..................................... 2.87+ 3.32++ (3.80) 9.09 (1.99)
---------- ------- ------- ------- ---------------
Net increase/(decrease) in net assets resulting
from operations.................................. 3.02 3.38 (3.92) 9.05 (1.93)
---------- ------- ------- ------- ---------------
Dividends and distributions to shareholders:
Net investment income........................... -- -- -- (0.08) (0.03)
In excess of net investment income.............. -- -- (0.03) -- --
Net realized gains on investments............... -- (2.22) (3.83) -- --
---------- ------- ------- ------- ---------------
Total dividends and distributions to
shareholders..................................... -- (2.22) (3.86) (0.08) (0.03)
---------- ------- ------- ------- ---------------
Dilution due to capital share rights offering..... (1.99) -- -- -- --
---------- ------- ------- ------- ---------------
Net asset value, end of period.................... $15.21 $14.18 $13.02 $20.80 $11.83
---------- ------- ------- ------- ---------------
---------- ------- ------- ------- ---------------
Market value, end of period....................... $12.75 $13.875 $14.75 $19.00 $11.25
---------- ------- ------- ------- ---------------
---------- ------- ------- ------- ---------------
Total investment return(a)........................ (8.11)%(b) 8.85% (6.79)% 69.55% (19.16)%
---------- ------- ------- ------- ---------------
---------- ------- ------- ------- ---------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)........... $99,856 $65,696 $60,156 $95,820 $54,493
Ratio of expenses to average net assets, net of
fee waivers...................................... 1.75%(c) 1.76% 1.86%# 2.05%# 2.45%(c)
Ratio of expenses to average net assets, excluding
fee waivers...................................... 2.09%(c) 2.11% 2.13%# 2.05%# 2.45%(c)
Ratio of net investment income/(loss) to average
net assets....................................... 1.69%(c) 0.39% (0.62)% (0.28)% 0.61%(c)
Portfolio turnover rate........................... 34%(d) 55% 69% 73% 50%(d)
Average commission rate per share(e).............. $0.0001 -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and offering expenses of $0.16 per share.
+ Based on average shares outstanding from April 1, 1996 through August
16, 1996, the pricing date of the rights offering, and from August 17,
1996 through September 30, 1996.
++ Includes a $0.01 per share increase to the Fund's net asset value per
share resulting from the anti-dilutive impact of shares issued
pursuant to the Fund's automatic Dividend Reinvestment Plan in 1996.
# 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 fiscal year ended March 31, 1995 and
2.02% for the fiscal year ended March 31, 1994, net of fee waivers and
2.00% for the fiscal year ended March 31 1995 and 2.02% for the fiscal
year ended March 31, 1994 excluding fee waivers.
(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
dividends and 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) Assumes shareholder did not participate in the rights offering. The
total investment return would have been (4.12)% assuming the
shareholder did participate in the rights offering.
(c) Annualized.
(d) Not annualized.
(e) Disclosure is required for fiscal years beginning on or after
September 1, 1995. Represents average commission rate per share
charged to the Fund on purchases and sales of investments during the
period.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The Brazilian Equity Fund, Inc. (the "Fund") was incorporated in Maryland on
February 10, 1992 and commenced investment 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 equity securities for which market quotations are
readily available are valued at the last sales price prior to the time of
determination, or, if no sales price is available at that time, at the closing
price 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 the
asked prices, if available. All other securities and assets are valued at the
fair value as determined in good faith by the Board of Directors. Short-term
investments having a maturity of 60 days or less are valued on the basis of
amortized cost. The preparation of financial statements requires the use of
estimates by management, principally the valuation of non-publicly traded
securities. Accordingly, the Board of Directors has established general
guidelines for calculating fair value of non-publicly traded securities. At
September 30, 1996, the Fund held 1.86% of its net assets in securities valued
in good faith by the Board of Directors with an aggregate cost of $2,000,000 and
fair value of $1,856,250. The net asset value per share of the Fund is
calculated weekly, at the end of each month and at any other times determined by
the Board of Directors.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At September 30, 1996, the
interest rate was 5.3125% which resets on a daily basis. Amounts on deposit are
generally available on the same business day.
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 U.S.
federal 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 U.S. federal income and excise taxes.
No Brazilian income tax is imposed on capital gains. Through December 31, 1995,
a 15% withholding tax was imposed on dividends and interest from stock market
investments. Effective January 1, 1996, no Brazilian withholding tax is imposed
on dividends paid from post December 31, 1995 earnings.
At March 31, 1996, the Fund had capital loss carryover for U.S. federal income
tax purposes of $2,788,751 which expires in 2004.
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, assets and liabilities at the
current rate of exchange; and
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
(II) purchases and sales of investment securities, income and expenses at
the relevant rates 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 changes 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.
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.
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 currency.
Net realized foreign exchange losses represent foreign exchange gains and losses
from transactions in foreign currencies and forward foreign currency contracts,
exchange gains or losses realized between the trade date and settlement date 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.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders, substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
federal income tax purposes due to U.S. 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 investment 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. 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. Consequently, acquisition and disposition of securities by the Fund may
be inhibited.
Investments in Brazil may involve certain considerations and risks not typically
associated with investments in the United States, including the
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
possibility of future political and economic developments and the level of
Brazilian governmental supervision and regulation of its securities markets.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser with respect to
all investments. As compensation for its 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 the
Fund's average weekly net assets in excess of $100 million. BEA has agreed to
waive its portion of the advisory fee previously payable to former sub-advisers,
equal to an annual rate of 0.35% of the Fund's average weekly net assets. For
the six months ended September 30, 1996, BEA earned $530,446 for advisory
services, of which BEA waived $134,102. BEA also provides certain administrative
services to the Fund and is reimbursed by the Fund for costs incurred on behalf
of the Fund. For the six months ended September 30, 1996, BEA was reimbursed
$1,830 for administrative services rendered to the Fund.
The First National Bank of Boston, Sao Paulo ("FNBB") serves as the Fund's
Brazilian administrator. FNBB is paid for its services, out of the custody fee
payable to Brown Brothers Harriman & Co., the Fund's accounting agent and
custodian, 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 six months ended September
30, 1996, FNBB earned $44,525 for administrative services.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund'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 weekly net assets and
0.08% of amounts in excess of $100 million. For the six months ended September
30, 1996, BSFM earned $39,293 for administrative services.
NOTE C. CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common stock,
$0.001 par value. Of the 6,564,840 shares outstanding at September 30, 1996, BEA
owned 7,169 shares.
During the six months ended September 30, 1996, the Fund issued 1,930,835 shares
in connection with a rights offering of the Fund's shares. Shareholders of
record on July 17, 1996 were issued one nontransferable right for each share of
common stock owned, entitling shareholders the opportunity to acquire one newly
issued share of common stock for every three rights held at a subscription price
of $11.09 per share. Shareholders who fully exercised all the rights issued to
them in the primary subscription were allowed to purchase additional shares at
the same price under an overallotment agreement. Estimated offering costs of
$396,250 for expenses attributed to the rights offering were charged to
additional paid-in-capital. In addition, the Fund incurred $776,220 in dealer
manager and soliciting fees that were netted against the proceeds of the
subscription.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1996 was $81,429,579. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$18,393,784, was composed of gross appreciation of $21,230,306 for those
investments having an excess of value over cost and gross depreciation of
$2,836,522 for those investments having an excess of cost over value.
For the six months ended September 30, 1996, purchases and sales of securities,
other than short-term obligations, were $46,919,635 and $25,472,447,
respectively.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
NOTE E. CREDIT AGREEMENT
The Fund, along with 17 other U.S. registered management 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 18 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
during the six months ended September 30, 1996.
- --------------------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On July 22, 1996, the annual meeting of shareholders of The Brazilian Equity
Fund, Inc. (the "Fund") was held and the following matters were voted upon:
(1) To re-elect four directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ----------------------------------------------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Enrique R. Arzac* 3,494,030 26,398 1,113,577
Emilio Bassini 3,494,830 25,598 1,113,577
James J. Cattano 3,488,324 32,104 1,113,577
Richard Watt 3,489,037 31,391 1,113,577
</TABLE>
- --------------
* On February 13, 1996, the Board of Directors increased the size of the Fund's
Board of Directors to eight and Dr. Enrique R. Arzac was elected to fill the
newly created vacancy. The election of Dr. Arzac was submitted to the Fund's
shareholders for their ratification at the annual meeting of shareholders.
In addition to the Directors re-elected at the meeting, Peter A. Gordon, George
W. Landau, Daniel Sigg and Martin M. Torino 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, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
3,500,696 9,034 10,698 1,113,577
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to The Brazilian Equity Fund, Inc.'s (the "Fund") Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have
elected, unless 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 dividend 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 (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign 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, non-participants 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 the 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, the Plan Agent, as agent for the participants, will buy
shares of common stock in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts.
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 distributions
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, semi-annually, 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, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately 10 days before February 15 or
- --------------------------------------------------------------------------------
18
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
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 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 other 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 of 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 semi-annual 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.
- --------------------------------------------------------------------------------
19
<PAGE>
SUMMARY OF GENERAL INFORMATION
The Fund--The Brazilian Equity Fund, Inc.--is a closed-end, non-diversified
management investment company whose shares trade on the New York Stock Exchange.
Its investment objective is long-term capital appreciation through investments
primarily in Brazilian equity securities. The Fund is managed and advised by BEA
Associates ("BEA"). BEA is a diversified asset manager, handling equity,
balanced, fixed income, international and derivative based accounts. Portfolios
include international and emerging market investments, common stocks, taxable
and non-taxable bonds, options, futures and venture capital. BEA manages money
for corporate pension and profit-sharing funds, public pension funds, union
funds, endowments and other charitable institutions and private individuals. As
of September 30, 1996, BEA managed approximately $31.3 billion in assets. BEA
also advises eight other international closed-end funds: The Chile Fund, Inc.,
The First Israel Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The
Emerging Markets Telecommunications Fund, Inc., The Indonesia Fund, Inc., The
Latin America Equity Fund, Inc., The Latin America Investment Fund, Inc. and The
Portugal Fund, Inc.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "BrazilEF" and THE WALL STREET JOURNAL (daily) and BARRON'S (each
Monday) under the designation "BrazEqtyFd". The Fund's New York Stock Exchange
trading symbol is BZL. Weekly comparative net asset value (NAV) and market price
information about The Brazilian Equity Fund, Inc.'s shares are published each
Sunday in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL and
BARRON'S, as well as other newspapers, in a table called "Closed End Funds."
To request an annual report, or to be placed on the Fund's mailing list,
shareholders should call 1-800-293-1232.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN--SUMMARY
An automatic Dividend Reinvestment and Cash Purchase Plan (the "Plan") is
available to provide shareholders with automatic reinvestment of their dividend
income and capital gain distributions in additional shares of the Fund's common
stock.
As per the Plan, each shareholder will be automatically reinvested in additional
shares of the Fund by The First National Bank of Boston, unless otherwise
instructed by the shareholder in writing. Shareholders who do not participate in
the Plan will receive all dividends and distributions in cash paid by check in
U.S. dollars. Shares registered in street name will be reinvested under the
Plan, unless the broker-dealer or other nominee does not provide a dividend
reinvestment plan or the shareholder elects to receive their dividends in cash.
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Emilio Bassini Chairman of the Board of Directors,
President and Investment Officer
Enrique R. Arzac Director
James J. Cattano Director
Peter A. Gordon Director
George W. Landau Director
Martin M. Torino Director
Daniel Sigg Director and
Senior Vice President
Richard Watt Director, Senior Vice President and
Chief Investment Officer
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rachel D. Manney Vice President and Treasurer
Wendy S. Setnicka Assistant Treasurer
INVESTMENT ADVISER
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
This report, including the financial statements herein, is sent
to the shareholders of the Fund for their information. The
financial information included herein is taken from the records
of the Fund without examination by independent accountants who
do not express an opinion thereon. It is not a prospectus,
circular or representation intended for use in the purchase or
sale of shares of the Fund or of any securities mentioned in
this report.
[LOGO]
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