<PAGE>
THE BRAZILIAN EQUITY
FUND, INC.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
[PHOTO]
<PAGE>
CONTENTS
Letter to Shareholders.................................................. 1
Portfolio Summary....................................................... 6
Schedule of Investments................................................. 7
Statement of Assets and Liabilities......................................9
Statement of Operations.................................................10
Statement of Changes in Net Assets......................................11
Financial Highlights....................................................12
Notes to Financial Statements...........................................13
Results of Annual Meeting of Shareholders...............................17
Description of InvestLink-SM- Program...................................18
PICTURED ON THE COVER IS A SCENIC VIEW OF RIO DE JANEIRO, BRAZIL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
October 29, 1998
DEAR SHAREHOLDER:
I am writing to report on the activities of The Brazilian Equity Fund, Inc. (the
"Fund") for the six months ended September 30, 1998.
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,
1998, total net assets were $32,202,530.
According to its charter, the Fund's investment objective is to achieve
long-term capital appreciation via investment in equity securities of Brazilian
issuers. These securities may be listed on stock exchanges either in Brazil or
elsewhere, notably New York.
PERFORMANCE: HURT BY SECTOR ALLOCATIONS, STOCK SELECTION
The Fund's NAV at September 30, 1998 was $4.91 per share, equating to a return
based on NAV of -52.1% during the six months ended on that date. By contrast,
the Morgan Stanley Capital International Brazil Index (the "Index") fell by
44.3% in the same period.
I attribute the Fund's underperformance of the Index to a combination of
unfavorable sector allocations and stock selection:
BANKING. Our approach to the banking sector had the most negative impact on
return. We chose not to participate in most of the bank privatizations that took
place since March, because we felt that the opportunities were speculative at
best. We also underweighted the banks in a period in which they performed well.
PUBLIC SERVICES. The portfolio's lone holding in this category was Companhia de
Saneamento Basico do Estado de Sao Paulo ("Sabesp"), the water and sewage
operator for much of the state of Sao Paulo. Sabesp shares were hurt by a
combination of illiquidity and negative sentiment concerning the company's
eventual privatization. The stock also was (and remains) one of the Fund's
largest single positions, which exacerbated the effect of its fall on
performance.
ELECTRICITY. Among the portfolio's electricity holdings was Companhia
Paranaense de Energia ("Copel"), one of Brazil's largest integrated electric
utilities and the object of unjustifiably heavy selling activity. Copel shares
were especially battered during the summer sell-off because they are listed in
New York as well as in Brazil, meaning that global investors were able to sell
both types of shares when seeking to reduce their Brazilian exposure. I will
discuss Copel in greater detail later in this report.
MERCHANDISING. Our merchandising allocation primarily consists of Companhia
Brasileira de Distribuicao Grupo Pao de Acucar ("CBD"), Brazil's largest
supermarket operator and one of the highest-quality Brazilian companies of any
kind. Like Copel, CBD shares disproportionately suffered from their dual listing
in Brazil and New York. We believe the stock was unreasonably punished and
continue to view it as one of the Fund's core holdings.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
BRAZILIAN EQUITIES: TAKING IT ON THE CHIN
The eyes of the world turned toward Brazil over the last few months, a period of
extraordinary volatility for the stock markets of both developed and developing
nations worldwide.
Russia, considered by many to be too big to fail, fell and fell hard, devaluing
its currency and defaulting on local-currency debt. The International Monetary
Fund (IMF) couldn't save it, losing much credibility in the process. Already
agitated by falling share prices around the globe, investors shunned any form of
risk and sought to identify the next potential victim of what has now been
dubbed the "Asian Contagion".
That's where Brazil came in. Many saw weaknesses in Brazil that might cause its
economy to topple, carrying with it those of other Latin American nations with
which it has strong business ties. Fortunately for all doing business in the
region, Brazil disappointed in this regard.
To be sure, the country took some heavy blows. There was a run on foreign
exchange reserves to the tune of $30 billion. The stock market plummeted. Fears
of an imminent devaluation of the REAL ran rampant. Interest rates peaked at
50%. But all this and more was not quite enough to push Brazil over the edge.
For these and other reasons, Brazilian equities have suffered mightily this
year. The shares of many solid, well-positioned and substantial enterprises have
been hammered, as sellers trampled good companies along with the bad in a
panic-driven rush to liquidity. As a result, long-term investors with the
ability to weather today's economic ups and downs have been presented with some
truly outstanding buying opportunities.
THE PORTFOLIO: STRATEGY AND STRUCTURE
TOP 10 HOLDINGS, BY ISSUER*
<TABLE>
<CAPTION>
% OF
HOLDING SECTOR NET ASSETS
--------- -------------------- ----------
<S> <C> <C> <C>
1. Telesp Telecommunications 14.9
2. Eletrobras Utilities 13.9
3. Petrobras Oil & Natural Gas 9.3
4. Cemig Electric 6.4
Distribution
5. Copel Electric Generation 5.8
6. Sabesp Utilities 5.3
7. CBD Food & Beverages 4.2
8. Trafo Capital Goods 3.3
9. Brahma Food & Beverages 3.0
10. CRT Telecommunications 2.7
</TABLE>
- ------------------
* Company names are abbreviations of those found in the chart on page 6.
SECTOR ALLOCATION
(% of net assets)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SECTOR ALLOCATION (% OF NET
ASSETS)
<S> <C>
Capital Goods 3.29%
Consumer Goods 1.34%
Electric Distribution 9.06%
Electric Generation 5.79%
Food & Beverages 11.67%
Local/Long Distance 1.15%
Mining 1.55%
Oil & Natural Gas 11.08%
Retail 4.41%
Telecommunications 17.67%
Textiles 2.32%
Utilities 19.40%
Other* 0.97%
Cash and Other Assets 10.30%
</TABLE>
- ------------------
* Other includes sectors below 1% of net assets.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
One of the advantages of the closed-end fund structure is that valuable assets
do not have to be shed at fire-sale prices in order to meet redemption
requirements, as is the case with open-end funds. By the same token, a
closed-end fund has greater flexibility to invest in significantly undervalued
assets that hold great promise of long-term appreciation. I see the present as
an especially propitious time to take the long-term approach in Brazil.
That said, I'm currently positioning the Fund to emphasize state-owned companies
that should benefit from improvements in operating efficiencies, if, as
expected, they are privatized. In particular, I'm looking at a number of
companies in the electricity, telecom, mining and water utility sectors. This
strategy is long-term in nature, given the amount of time it takes for these
companies to be sold, restructured and become more profitable.
I've also reorganized the Fund's significant exposure to Telecomunicacoes
Brasileiras S.A. ("Telebras") via its holding companies. In this vein, I added
more shares of Telecomunicacoes de Sao Paulo S.A. ("Telesp"), the largest and
most liquid of the Telebras subsidiaries, to the portfolio.
Many consider Telesp the most attractive telecom privatization in the world
today. In addition, some observers have projected that, over the next five
years, Telesp will become Brazil's dominant provider of telecommunications
services.
There is ample justification for such sentiments:
- - Telesp generates most of its income within Sao Paulo, Brazil's wealthiest,
most densely populated and most economically vibrant state, which accounts
for 36% of the country's Gross Domestic Product (GDP).
- - Owing to Sao Paulo's population density and high concentration of businesses
and wealthy individuals, Telesp customers generate more domestic and
long-distance telephone minutes than any other service area in Brazil. This
should play heavily in Telesp's favor when it is allowed to enter the
long-distance market in 2002.
- - Telesp is already the most profitable of the wireline telcos spun off from
Telebras, even though one of the others (Tele-Mar) has more lines and greater
total revenues.
- - Although competition undoubtedly will emerge for Telesp's rich service area,
the cost of entry is high. Despite strong demand for telephone services, it
is unlikely that outsiders would be able to effectively compete on the
fixed-line front, as fixed-line installation is very expensive and Telesp's
fixed-line network is firmly established.
- - Telesp has proven more than able to quickly upgrade its network and reduce
costs, while improving service. Since only 32% of consumers and 68% of
businesses in the region have telephone service, this ability should play
substantially in its favor.
- - Telesp is well-insulated against recession by its substantial back orders for
telephone service, a built-in source of demand that should take several years
to satisfy.
There are many other potentially lucrative opportunities to be found in the
privatization arena as well. Two electric utilities stand out in this regard.
COMPANHIA ENERGETICA DE MINAS GERAIS ("Cemig") is the utility company that
provides nearly all of the electricity required in the Brazilian state of Minas
Gerais (pronounced MEEnahs zheRAZE). The company already has been partially
privatized through the sale of 33% of its voting capital to the U.S.-based
Southern Company, thus placing it ahead of the game in establishing partnerships
between state-owned enterprises and private companies.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
Minas Gerais is Brazil's industrial heartland and its third-largest state in
terms of GDP. With a favorable concession area, strong management and solid
financials, Cemig is poised to take advantage of expansion opportunities that
will result when privatization opens up new markets for its generation and
distribution operations. Already, in fact, the state's congress has granted the
company the freedom to participate in upcoming privatization opportunities.
COMPANHIA PARANAENSE DE ENERGIA ("Copel") is the government-owned electric
company in the Brazilian state of Parana, which is close by the state of Sao
Paulo. It is Brazil's second-largest integrated electric utility (i.e., its
operations include the generation, transmission and distribution of electricity)
and fourth-largest electricity generator in terms of installed capacity.
Parana's favorable location and well-developed infrastructure have encouraged a
continuing stream of new companies to locate in the region, many of
which--notably in automobiles, chemicals and foods--are heavy users of
electricity. To satisfy growing current and anticipated future demand, Copel is
investing in a highly attractive generation project, Salto Caxias, which will be
capable of generating 1,240 megawatts, when it starts up late in 1998 or early
in 1999.
Both Cemig and Copel enjoy markets where there is strong and growing demand for
electricity, demand that should serve to fuel their growth for years to come.
I am excited about these investment opportunities and others that will
materialize as government-run enterprises are opened up to foreign investment.
OUTLOOK: THE LONG-TERM PICTURE REMAINS FAVORABLE
As I write, there are signs that the worst of the damage to Brazilian equities
may be over. President Fernando Henrique Cardoso has been re-elected, an event
that has long been considered essential for the enactment of any meaningful
economic reforms. It also has begun to look like the IMF will endorse a bailout
package far in excess of the $30 billion that had been rumored.
Brazil still faces a raft of challenges, most prominently its large and growing
fiscal deficit and wide current account deficit. Many Brazil watchers, in
addition, feel that the REAL is overvalued by some 15-20% and should be more
competitive with other currencies. Overseas investors, however, evidently
believe that most current economic problems can be favorably resolved. Foreign
capital continues to flow into the country in anticipation of the continuing
privatization of state-owned enterprises like this summer's hugely successful
sale of Telebras.
Oddly enough, Brazil may be indirectly aided by the highly unstable global
economic environment that took center-stage during the third quarter. The
country is seen by most as a firebreak, one standing between the spreading
global economic conflagration and those countries that have yet to be consumed
by it. Upon Brazil's shoulders rests the economic integrity of all of Latin
America. Should it fall, taking with it South and much of Central America, a
large-scale sell-off across global markets would likely ensue. In the interests
of self-preservation, then, it is improbable that the major economic powers
would allow such an event to actually occur.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
One is left, therefore, with a Brazilian economic order that is cracked, but not
broken; and that promises great risk, but equally great rewards for the
long-term investor.
In closing, I note that the Fund's cash position was 10.3% at the end of
September. I anticipate using these reserves to make future purchases from among
the many bargains that have resulted from the panic-driven overselling of
numerous solid, fundamentally sound companies.
Sincerely yours,
[SIG]
/s/ Richard W. Watt
Richard W. Watt
President and Chief Investment Officer*
FROM BEA ASSOCIATES:
I. We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's dividend reinvestment
program which is known as the InvestLink-SM- Program (the "Program"). The
Program 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 the Fund's Transfer Agent for details about participating in the
Program. The Program also provides for additional share purchases. The
Program is described on pages 18 through 20 of this report.
II. Many services provided to the Fund and its shareholders by BEA Associates
("BEA") and the Fund's service providers rely on the functioning of their
respective computer systems. Many computer systems cannot distinguish the
year 2000 from the year 1900, with resulting potential difficulty in
performing various calculations (the "Year 2000 Issue"). The Year 2000
Issue could potentially have an adverse impact on the handling of security
trades, the payment of interest and dividends, pricing, account services
and other Fund operations.
BEA recognizes the importance of the Year 2000 Issue and is taking
appropriate steps necessary in preparation for the year 2000. At this time,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund nor can there be any assurance that the Year
2000 Issue will not have an adverse effect on the Fund's investments or on
global markets or economies, generally.
BEA anticipates that its system will be adapted in time for the year 2000.
BEA is seeking assurances that comparable steps are being taken by the
Fund's other major service providers. BEA will be monitoring the Year 2000
Issue in an effort to ensure appropriate preparation.
- --------------------------------------------------------------------------------
* Richard W. 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 formerly was 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 fund focusing on smaller Latin American companies. Before joining
Gartmore Investment Limited 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
President, Chief Investment Officer and a Director of the Fund. He also is
President, Chief Investment Officer and a Director of The Chile Fund, Inc., The
Emerging Markets Infrastructure Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Latin America
Equity Fund, Inc., The Latin America Investment Fund, Inc., and The Portugal
Fund, Inc.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
PORTFOLIO SUMMARY - AS OF SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
9/30/98 3/31/98
Banking 0.00% 3.86%
Capital Goods 3.29% 2.37%
Consumer Goods 1.34% 1.20%
Electric Distribution 9.06% 3.85%
Electric Generation 5.79% 8.42%
Food & Beverages 11.71% 9.17%
Local and/or Long Distance Telephone
Service 1.15% 13.38%
Mining 1.55% 6.19%
Oil & Natural Gas 11.08% 8.33%
Retail 4.41% 5.39%
Telecommunications 17.67% 10.61%
Textiles 2.32% 5.53%
Utilities 19.40% 19.47%
Other 0.97% 0.95%
Cash and Other Assets 10.26% 1.28%
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1. Telecomunicacoes de Sao Paulo S.A. Telecommunications 14.9
- ---------------------------------------------------------------------------------------------------------------------
2. Centrais Eletricas Brasileiras S.A. Utilities 13.9
- ---------------------------------------------------------------------------------------------------------------------
3. Petroleo Brasileiro S.A. Oil & Natural Gas 9.3
- ---------------------------------------------------------------------------------------------------------------------
4. Companhia Energetica de Minas Gerais Electric Distribution 6.4
- ---------------------------------------------------------------------------------------------------------------------
5. Companhia Paranaense de Energia Electric Generation 5.8
- ---------------------------------------------------------------------------------------------------------------------
6. Companhia de Saneamento Basico do Estado de Sao Paulo Utilities 5.3
- ---------------------------------------------------------------------------------------------------------------------
7. Companhia Brasileira de Distribuicao Grupo Pao de Acucar Food & Beverages 4.2
- ---------------------------------------------------------------------------------------------------------------------
8. Trafo Equipamentos Electricos S.A. Capital Goods 3.3
- ---------------------------------------------------------------------------------------------------------------------
9. Companhia Cervejaria Brahma Food & Beverages 3.0
- ---------------------------------------------------------------------------------------------------------------------
10. Companhia Riograndense de Telecomunicacoes Telecommunications 2.7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-89.70%
BUSINESS SERVICES-0.92%
Multibras da Amazonia S.A. PN........... 1,032,000 $ 295,989
-----------
CAPITAL GOODS-3.29%
Trafo Equipamentos Electricos S.A.
PN+.................................... 884,505 1,059,511
-----------
CONSTRUCTION-0.05%
Empresa Nacional de Comercio Redito e
Participacoes S.A. PN.................. 13,728,100 17,371
-----------
CONSUMER GOODS-1.34%
Dixie Toga S.A. PN...................... 1,768,539 432,643
-----------
ELECTRIC DISTRIBUTION-9.06%
Companhia Energetica de Minas Gerais
PN..................................... 94,948,000 2,066,437
Espirito Santo Centrais Eletricas
S.A.................................... 16,800 850,310
-----------
2,916,747
-----------
ELECTRIC GENERATION-5.79%
Companhia Paranaense de Energia ADR..... 184,585 1,176,729
Companhia Paranaense de Energia PNB..... 104,593,000 688,199
-----------
1,864,928
-----------
FOOD & BEVERAGES-11.67%
Bompreco S.A. Supermercados do Nordeste
PN..................................... 55,000 371,167
Brazil Fast Food Corp., Warrants
(expiring 9/30/01)+.................... 250,000 19,531
Ceval Alimentos S.A. ON+................ 378,796,268 706,179
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar ADR................ 102,800 1,342,825
Companhia Cervejaria Brahma PN.......... 2,500,000 980,640
Santista Alimentos S.A. ON.............. 756,106 338,046
-----------
3,758,388
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
LOCAL AND/OR LONG DISTANCE TELEPHONE SERVICE-1.15%
Telecomunicacoes Brasileiras S.A. ADR
PN..................................... 5,348 $ 369,012
-----------
MINING-1.55%
Companhia Vale do Rio Doce ADR.......... 26,220 376,073
Companhia Vale do Rio Doce PNA.......... 8,226 121,435
-----------
497,508
-----------
OIL & NATURAL GAS-11.08%
Companhia de Gas de Sao Paulo PN ADR.... 21,496,549 565,770
Petroleo Brasileiro S.A. PN............. 29,173,817 3,002,163
-----------
3,567,933
-----------
RETAIL-4.41%
Globex Utilidades S.A. PN............... 27 66
Lojas Americanas S.A. PN+............... 189,200,000 813,969
Makro Atacadista S.A.................... 373,000 185,643
Makro Atacadista S.A. GDR............... 60,000 420,162
-----------
1,419,840
-----------
TELECOMMUNICATIONS-17.67%
Companhia Riograndense de
Telecomunicacoes PN.................... 2,926,800 881,410
Telecomunicacoes de Sao Paulo S.A. PN... 33,138,929 4,808,213
-----------
5,689,623
-----------
TEXTILES-2.32%
Companhia de Tecidos Norte de Minas
S.A.................................... 968,606 153,202
Wembley Sociedade Anonima S.A. PN....... 172,000,000 594,880
-----------
748,082
-----------
UTILITIES-19.40%
Centrais Eletricas Brasileiras S.A.
PNB.................................... 202,921,635 4,484,834
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Companhia de Saneamento Basico do Estado
de Sao Paulo ON........................ 27,216,000 $ 1,692,032
Companhia Energetica de Brasilia PNB.... 5,181,254 67,309
Companhia Paulista de Forca e Luz PN,
Pro Rata Receipts+..................... 58,776 3,719
-----------
6,247,894
-----------
TOTAL INVESTMENTS-89.70%
(Cost $52,616,918) (Notes A,D)........................ 28,885,469
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-10.30%.................................... 3,317,061
-----------
NET ASSETS-100.00%..................................... $32,202,530
-----------
-----------
- ---------------------------------------------------------
+ Security is non-income producing.
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
PNA Preferred Shares, Class A.
PNB Preferred Shares, Class B.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $52,616,918)
(Note A)............................... $ 28,885,469
Cash (including $210,184 of foreign
currency with a cost of $210,330) (Note
A)..................................... 3,408,806
Receivables:
Dividends............................. 430,627
Investments sold...................... 114,180
Prepaid expenses........................ 9,944
--------------
Total Assets............................ 32,849,026
--------------
LIABILITIES
Payables:
Investments purchased................. 319,015
Investment advisory fee (Note B)...... 110,400
Administration fees (Note B).......... 11,486
Other accrued expenses................ 205,595
--------------
Total Liabilities....................... 646,496
--------------
NET ASSETS (applicable to 6,564,841
shares of common stock outstanding)
(Note C)............................... $ 32,202,530
--------------
--------------
NET ASSET VALUE PER SHARE ($32,202,530
DIVIDED BY 6,564,841)................. $4.91
--------------
--------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
6,564,841 shares issued and outstanding
(100,000,000 shares authorized)........ $ 6,565
Paid-in capital......................... 83,950,125
Undistributed net investment income..... 464,579
Accumulated net realized loss on
investments and foreign currency
related transactions................... (28,480,290)
Net unrealized depreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... (23,738,449)
--------------
Net assets applicable to shares
outstanding............................ $ 32,202,530
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 1,242,530
Interest.............................. 84,054
Less: Foreign taxes withheld.......... (155,012)
--------------
Total Investment Income............... 1,171,572
--------------
Expenses:
Investment advisory fees (Note B)..... 356,229
Audit and legal fees.................. 93,224
Printing.............................. 62,136
Custodian fees (Note B)............... 60,356
Accounting fees....................... 38,104
Administration fees (Note B).......... 31,511
Directors' fees....................... 22,164
Transfer agent fees................... 14,640
Insurance............................. 8,323
NYSE listing fee...................... 8,107
Other................................. 15,116
Brazilian taxes (Note A).............. 89,439
--------------
Total Expenses........................ 799,349
Less: Fee waivers (Note B)............ (92,356)
--------------
Net Expenses........................ 706,993
--------------
Net Investment Income................. 464,579
--------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized loss from:
Investments........................... (19,770,035)
Foreign currency related
transactions......................... (109,753)
Net change in unrealized depreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ (15,742,554)
--------------
Net realized and unrealized loss on
investments and foreign currency
related transactions................... (35,622,342)
--------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $ (35,157,763)
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended For the Fiscal
September 30, Year
1998 Ended
(unaudited) March 31, 1998
<S> <C> <C>
-------------------------------
DECREASE IN NET ASSETS
Operations:
Net investment income................. $ 464,579 $ 185,926
Net realized gain/(loss) on
investments and foreign currency
related transactions................. (19,879,788) 18,396,725
Net change in unrealized depreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. (15,742,554) (36,510,104)
-------------- --------------
Net decrease in net assets resulting
from operations.................... (35,157,763) (17,927,453)
-------------- --------------
Dividends and distributions to
shareholders:
Net investment income................. -- (112,358)
Net realized gain on investments...... -- (32,263,038)
In excess of net realized gain on
investments.......................... -- (251,864)
-------------- --------------
Total dividends and distributions to
shareholders....................... -- (32,627,260)
-------------- --------------
Capital share transactions (Note C):
Reduction of offering costs charged to
capital.............................. -- 27,901
-------------- --------------
Total decrease in net assets........ (35,157,763) (50,526,812)
-------------- --------------
NET ASSETS
Beginning of period..................... 67,360,293 117,887,105
-------------- --------------
End of period (including undistributed
net investment income of $464,579 for
the six months ended September 30,
1998).................................. $ 32,202,530 $ 67,360,293
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<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
Period
For the Six April 10,
Months Ended 1992*
September 30, For the Fiscal Years Ended March 31, through
1998 ------------------------------------------------------------ March 31,
(unaudited) 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period....................... $10.26 $17.96 $14.18 $13.02 $20.80 $11.83 $13.79**
--------------- -------- -------- -------- -------- -------- -----------
Net investment
income/(loss)................ 0.07 0.03 0.10+ 0.06 (0.12) (0.04) 0.06
Net realized and unrealized
gain/(loss) on investments
and foreign currency related
transactions................. (5.42) (2.76) 5.69+ 3.32++ (3.80) 9.09 (1.99)
--------------- -------- -------- -------- -------- -------- -----------
Net increase/(decrease) in net
assets resulting from
operations................... (5.35) (2.73) 5.79 3.38 (3.92) 9.05 (1.93)
--------------- -------- -------- -------- -------- -------- -----------
Dividends and distributions to
shareholders:
Net investment income....... -- (0.02) (0.02) -- -- (0.08) (0.03)
In excess of net investment
income..................... -- -- -- -- (0.03) -- --
Net realized gains on
investments................ -- (4.91) -- (2.22) (3.83) -- --
In excess of net realized
gain on investments........ -- (0.04) -- -- -- -- --
--------------- -------- -------- -------- -------- -------- -----------
Total dividends and
distributions to
shareholders................. -- (4.97) (0.02) (2.22) (3.86) (0.08) (0.03)
--------------- -------- -------- -------- -------- -------- -----------
Dilution due to capital share
rights offering.............. -- -- (1.99) -- -- -- --
--------------- -------- -------- -------- -------- -------- -----------
Net asset value, end of
period....................... $4.91 $10.26 $17.96 $14.18 $13.02 $20.80 $11.83
--------------- -------- -------- -------- -------- -------- -----------
--------------- -------- -------- -------- -------- -------- -----------
Market value, end of period... $4.00 $8.375 $14.50 $13.875 $14.75 $19.00 $11.25
--------------- -------- -------- -------- -------- -------- -----------
--------------- -------- -------- -------- -------- -------- -----------
Total investment return(a).... (52.24)% (5.55)% 4.67%(b) 8.85% (6.79)% 69.55% (19.16)%
--------------- -------- -------- -------- -------- -------- -----------
--------------- -------- -------- -------- -------- -------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)..................... $32,203 $67,360 $117,887 $65,696 $60,156 $95,820 $54,493
Ratio of expenses to average
net assets, net of fee
waivers#..................... 2.67%(c) 2.07% 1.76% 1.76% 1.86% 2.05% 2.45%(c)
Ratio of expenses to average
net assets, excluding fee
waivers...................... 3.02%(c) 2.42% 2.11% 2.11% 2.13% 2.05% 2.45%(c)
Ratio of expenses to average
net assets, net of fee
waivers and excluding
taxes........................ 2.33%(c) 1.72% 1.69% 1.76% 1.73% 2.02% 2.45%(c)
Ratio of net investment
income/(loss) to average net
assets....................... 1.76%(c) 0.17% 0.39% 0.39% (0.62)% (0.28)% 0.61%(c)
Portfolio turnover rate....... 65% 123% 74% 55% 69% 73% 50%
</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 March 31, 1997.
++ 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.
# Ratios shown are inclusive of Brazilian transaction taxes, if any.
(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 program. 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 10.19% assuming the
shareholder did participate in the rights offering.
(c) Annualized.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<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:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
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 net asset value per share of the Fund is calculated on each
business day, with the exception of those days on which the New York Stock
Exchange is closed.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At September 30, 1998, the
interest rate was 4.80% 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.
For U.S. federal income tax purposes, realized foreign currency losses and net
realized capital losses from investments incurred after October 31, 1997, within
the Fund's prior fiscal year, are deemed to arise on the first day of the
current fiscal year. The Fund incurred and elected to defer such losses of
$220,687 and $7,266,646, respectively.
No Brazilian income tax is imposed on capital gains. Effective January 23, 1997,
Brazil has imposed a 0.20% CONTRIBUCAO SOBRE MOVIMENTACAO FINANCIERA ("CPMF")
tax that applies to most debit transactions carried out by financial
institutions. There is no withholding tax on dividend income except for
dividends paid from a company's pre-1996 profits which are taxed at 15%.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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
(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 or losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation in value of investments and translation of
other assets and liabilities denominated in foreign currency.
Net realized foreign exchange losses represent foreign exchange gains and losses
from sales and maturities of debt securities, 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: 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.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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. 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, 1998, BEA earned $356,229 for advisory
services, of which BEA waived $92,356. 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, 1998, BEA was reimbursed
$5,124 for administrative services rendered to the Fund.
BankBoston, N.A., Sao Paulo ("BB") serves as the Fund's Brazilian administrator.
BB 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, 1998, BB earned $27,527 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, 1998, BSFM earned $26,387 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 6,564,841 shares outstanding at September 30, 1998, BEA
owned 7,169 shares.
During the fiscal year ended March 31, 1997, 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. Offering costs of $368,349 for
expenses attributable to the rights offering were charged to additional
paid-in-capital. In addition, the Fund incurred $776,220 in dealer manager and
solicitation 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, 1998 was $53,809,536. Accordingly, the net unrealized depreciation of
investments (including investments denominated in foreign currency) of
$24,924,067, was composed of gross appreciation of $405,107 for those
investments having an excess of value over cost and gross depreciation of
$25,329,174 for those investments having an excess of cost over value.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
For the six months ended September 30, 1998, purchases and sales of securities,
other than short-term obligations, were $31,482,051 and $33,588,515,
respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 other U.S. registered management investment companies
for which BEA serves as investment adviser, has a credit agreement with
BankBoston, N.A. 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 19 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 for the six months
ended September 30, 1998.
NOTE F. CONTINGENCIES
Currently, the Fund is a nominal defendant in a shareholder derivative and
purported class action which alleges violations of the Federal securities laws
and breach of fiduciary duty by the Fund's directors and investment adviser in
connection with the Fund's July 1996 rights offering. The costs of defending the
directors in this matter are being advanced by the Fund pursuant to rights of
indemnity set forth in the Fund's charter documents and are reflected in the
Fund's operating expenses. The investment adviser may be entitled to similar
advancement of expenses and rights of indemnity. Management believes that
neither the outcome of this litigation nor the Fund's related indemnification
obligations will have a material adverse effect on the financial position or
future operating results of the Fund, although there can be no assurance to that
effect.
NOTE G. SUBSEQUENT EVENT
SHARE REPURCHASE PROGRAM: On October 21, 1998, the Fund announced that its Board
of Directors have authorized the repurchase by the Fund of up to 15% of the
Fund's outstanding common stock, for the purposes of enhancing shareholder
value. The Fund's Board has authorized management of the Fund to repurchase such
shares in open market transactions at prevailing market prices from time to time
and in a manner consistent with the Fund continuing to seek to achieve its
investment objectives. The Board's actions were taken in light of the
significant discounts at which the Fund's shares recently have been trading. It
is intended both to provide additional liquidity to those shareholders that
elect to sell their shares and to enhance the net asset value of the shares held
by those shareholders that maintain their investment. The repurchase program
will be subject to review by the Directors of the Fund.
- --------------------------------------------------------------------------------
16
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On July 22, 1998, 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 4,809,533 447,677 1,307,631
Richard J. Herring* 4,847,177 410,033 1,307,631
George W. Landau 4,809,916 447,294 1,307,631
Robert J. McGuire* 4,845,954 411,256 1,307,631
</TABLE>
*Such directors were elected by the Board of Directors of the Fund on May 12,
1998. The election of Mr. Herring and Mr. McGuire was submitted to the Fund's
shareholders for their ratification at the annual meeting of shareholders.
Subsequent to the shareholder meeting on July 22, 1998, Mr. Herring resigned and
Miklos A. Vasarhelyi was elected by the Board of Directors to fill the vacancy.
In addition to the directors re-elected at the meeting, James J. Cattano, Peter
A. Gordon, Martin M. Torino and Richard W. Watt continue to serve as directors
of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand L.L.P.) as independent public accountants for the fiscal year ending
March 31, 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
5,048,082 132,039 77,089 1,307,631
</TABLE>
(3) To terminate the investment advisory agreement with BEA Associates and to
have the Board of Directors of the Fund consider soliciting competitive
proposals for a new investment advisor.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
856,107 930,723 109,137 4,668,874
</TABLE>
The proposal failed to receive the necessary votes to be implemented.
- --------------------------------------------------------------------------------
17
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM
The InvestLink Program is sponsored and administered by BankBoston, N.A., not by
The Brazilian Equity Fund, Inc. (the "Fund"). BankBoston, N.A. will act as
program administrator (the "Program Administrator") of the InvestLink Program
(the "Program"). The purpose of the Program is to provide interested investors
with a simple and convenient way to invest funds and reinvest dividends in
shares of the Fund's common stock ("Shares") at prevailing prices, with reduced
brokerage commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions.) Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of Company Common Stock in the open market. Such purchases will be made
by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the purchase date. In all cases, transaction processing will occur within
30 days of the receipt of funds, except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of the
Federal Securities laws or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
BankBoston, N.A., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program. Each participant in the Program
will receive a statement of his account following each purchase of Shares. The
statements will also show the amount of dividends credited to such participant's
account (if applicable), as well as the fees paid by the participant. In
addition, each participant
- --------------------------------------------------------------------------------
18
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
will receive copies of the Fund's annual and semi-annual reports to
shareholders, proxy statements and, if applicable, dividend income information
for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not
to be automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert anyfractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional Shares) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or willful misconduct. Shares held in custody by the
Program Administrator are not subject to protection under the Securities
Investors Protection Act of 1970.
- --------------------------------------------------------------------------------
19
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 969-3306; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: BankBoston, N.A.,
InvestLink-SM- Program, P.O. Box 1681, Boston, MA 02105-1681.
- ---------------------------------------------
*InvestLink-SM- is a service mark of Boston EquiServe Limited Partnership.
- --------------------------------------------------------------------------------
20
<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, 1998, BEA managed approximately $35.2 billion in assets.
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."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.beafunds.com.
CLOSED-END FUNDS
SINGLE COUNTRY
The Chile Fund, Inc. (CH)
The First Israel Fund, Inc. (ISL)
The Indonesia Fund, Inc. (IF)
The Portugal Fund, Inc. (PGF)
MULTIPLE COUNTRY
The Emerging Markets Infrastructure Fund, Inc. (EMG)
The Emerging Markets Telecommunications Fund, Inc. (ETF)
The Latin America Equity Fund, Inc. (LAQ)
The Latin America Investment Fund, Inc. (LAM)
FIXED INCOME
BEA Income Fund, Inc. (FBF)
BEA Strategic Global Income Fund, Inc. (FBI)
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Dr. Enrique R. Arzac Director
James J. Cattano Director
Peter A. Gordon Director
George W. Landau Director
Robert J. McGuire Director
Martin M. Torino Director
Miklos A. Vasarhelyi Director
William W. Priest, Jr. Chairman of the Board of Directors
Richard W. Watt Director, President and Chief Investment Officer
Emily Alejos Investment Officer
Michael A. Pignataro Chief Financial Officer and Secretary
Hal Liebes Senior Vice President
Rocco A. Del Guercio Vice President
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
BankBoston, N.A.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
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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3910-SAR-9/98
