<PAGE>
[A SCENIC VIEW OF RIO DE JANEIRO, BRAZIL]
THE BRAZILIAN EQUITY FUND, INC.
ANNUAL REPORT
MARCH 31, 1997
<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
Report of Independent Accountants...........................................................18
Results of Annual Meeting of Shareholders...................................................19
Tax Information.............................................................................19
Description of Dividend Reinvestment and Cash Purchase Plan.................................21
</TABLE>
PICTURED ON THE COVER IS A SCENIC VIEW OF RIO DE JANEIRO, BRAZIL.
- - --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
May 12, 1997
DEAR SHAREHOLDERS:
We are writing to report on the activities of The Brazilian Equity Fund, Inc.
(the "Fund") for the year ended March 31, 1997.
The Fund completed a rights offering to existing shareholders in August 1996.
Approximately 1.9 million shares were issued at a price of $11.09 per share to
generate net proceeds of $20.6 million. Since the amount of shares offered
pursuant to the rights offering was increased by 25% in order to satisfy
oversubscription requests, the offering ranks as one of the most heavily
oversubscribed rights offerings for a closed-end fund. 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.
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 March 31,
1997, the Fund's NAV was $17.96 per share, as compared to $14.18 on March 31,
1996. From inception through March 31, 1997, $6.20 per share was paid out in
dividends and distributions, representing a total return based on NAV of 99.9%
for the life of the Fund, assuming participation in the rights offering.
In the year ending March 31, 1997, the Fund's total return, based on NAV and
assuming reinvestment of dividends and distributions, was 39.0%, assuming
participation in the rights offering. We note that the Fund's performance was
the best posted during the period of the three Brazil-specific funds followed by
the Lipper International Closed-End Funds Service.
COMMENTARY
POLITICS/ECONOMICS
In our last report, we discussed President Fernando Henrique Cardoso's effort to
achieve passage of a constitutional amendment permitting presidential
re-election and its primacy as an issue for investors. Over the past few months,
however, progress of the amendment through the Brazilian Congress has been such
that its passage now is widely considered likely.
Other political and economic concerns have returned to their prior status as the
most pressing matters for investors. Perhaps the most important of the political
issues is that of administrative reform, whose ultimate goal is the reduction of
the budget deficit by substantially lowering the government's huge payroll
expenses. In spite of administrative reform's importance, the Congressional
approval process has been characteristically slow. There are signs of movement,
however, and we would not be surprised to see substantive action taken in the
next few months. Investors should view this as very bullish news.
- - --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
Among economic matters, the trade deficit is most significant. It has exceeded
expectations for several months, mainly due to heavy consumer demand for imports
(particularly of cars, home electronics and other durable goods). Our view is
that the trade deficit most likely will continue to rise but will remain
manageable. The rising trade deficit, in turn, is mainly responsible for growth
in the current account deficit, which also is prompting concern. We believe that
cash inflows (particularly from foreign direct investment and upcoming
privatizations) will be sufficient to keep the current account deficit
well-financed. The government recently has taken steps to alleviate both deficit
problems and some analysts are predicting further such actions to occur later
this year.
As we write, the 1997 consensus projections for some of Brazil's most important
macroeconomic factors are as follows. Nominal interest rates are expected to
remain relatively unchanged from the current 20-21% range. Year-end inflation is
expected to fall through the 10% level for the first time in many years. Gross
domestic product (GDP) should grow by 3.5-4.0%, vs. 2.9% in 1996. The budget
deficit, so crucial to the nation's economic future, should drop to 3.1% of GDP,
down from 1996's 3.9%. Our own projections generally agree with the consensus.
PRIVATIZATION
After a strong showing throughout 1996, the Brazilian government's plan to
privatize many federally, state- and municipally owned companies ground to a
halt during the first quarter of 1997. The halt was especially significant
because it involved the sale of CVRD, the mining giant considered the crown
jewel of President Cardoso's privatization program. CVRD's sale was originally
slated for late 1996, but was postponed several times due to intense opposition.
The government finally was able to sell a 42% stake in CVRD to a consortium led
by steelmaker CSN in early May. With total proceeds of $3.13 billion, the sale
was the largest ever of a Brazilian government-owned company, by far. The great
success of the CVRD sale is very positive for investors both because it
demonstrates the Cardoso administration's commitment to the REAL Plan for
economic stabilization and sets the tone for future large-scale privatizations.
We expect both the pace and size of privatizations to increase over the next few
years. Only chemical companies, railroads, two electric utilities and CVRD have
been sold thus far, meaning that the huge sums projected from the breakup of
Brazil's telecommunications and electricity monopolies have not yet been
realized. We believe that Cardoso will try to maintain an aggressive
privatization schedule in order to generate large cash inflows and reinforce the
success of the REAL Plan.
TELECOM/UTILITIES
There has been much positive news concerning Brazil's telecom and electricity
sectors since our last report.
TELECOM - In December, the state of Rio Grande do Sul sold a 35% voting stake in
and operational control of its local-service provider to Telefonica de Espana
("Telefonica"), the Spanish telecom giant. Telefonica's willingness to pay a
relatively high price confirms our view that Brazilian telecom companies (and
those in emerging markets more generally) are trading at compellingly low
valuation levels relative to many others worldwide.
- - --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
Two important developments took place in April. First, telephone tariffs (i.e.,
rates) were rebalanced such that local-service charges went up and long-distance
charges went down, both more than expected. This should positively impact
earnings and help to make Brazilian rates much more internationally competitive.
Second, the government received bids from investor groups for the nation's 10
private cellular operating concessions and is expected to announce the results
in late May. Reportedly, the bids are at least 100% more than the government's
minimum auction price.
The next major steps in the privatization process are the establishment of a
formal regulatory structure and the passage of an omnibus General
Telecommunications Law, whose details are being worked out by a congressional
committee. Analysts are projecting passage to occur around September, with the
implementation of the regulatory structure to follow immediately thereafter.
ELECTRICITY - A new federal agency to regulate electricity operations was
created by the Brazilian Congress in December. Tariffs were increased for most
generators and distributors in April. Although the increases themselves varied
by company, collectively they underscore the government's resolve to prepare the
sector for competition when privatization occurs. The sale of a minority stake
(33%) in Companhia Energetica de Minas Gerais has been postponed for several
months but is expected in the near term.
Prospects for the electricity sector remain quite favorable. Demand is projected
to outstrip supply as early as 1999; vast amounts of capital are required for
financing needs; investors cannot avoid the sector, since it represents about
25% of the total Brazilian equity market and 41% of aggregate Latin American
power equities; the privatization trend is essentially irreversible; and the
regulatory structure will continue to gain clearer definition.
To illustrate our stock selection process, we'd like to highlight three of the
Fund's larger holdings.
COMPANHIA PAULISTA DE FORCA E LUZ
Companhia Paulista de Forca e Luz ("CPFL") is the electricity distributor for
the portion of Sao Paulo state excluding the city of Sao Paulo. It distributes
about 18% of the electricity consumed in the state and 6% of that consumed in
Brazil as a whole.
Our investment thesis for CPFL is simple: at current prices, the stock does not
include the value that should be unlocked by privatization.
Having anticipated the inevitability of privatization, CPFL's management
initiated a restructuring program in 1995 to better prepare itself for a more
competitive environment. In large part because of this initiative, CPFL was
selected in 1996 as the first of Sao Paulo's three utilities to be privatized,
most likely in late 1997. Its privatization will also be the first-ever sale of
a majority stake in a Brazilian electric utility.
Two other strong positives in CPFL's favor are efficiency and profitability. For
example, CPFL is among Latin America's most efficient distributors as measured
by the industry standard of reduction of energy losses from distribution. It has
also made great strides since 1994 in raising its level of sales, distribution
volume and number of
- - --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
customers while lowering its number of employees. CPFL's profitability is
enhanced by the lack of electricity-intensive industries (which insist on lower
distribution rates) in its customer base, meaning that the proportion of
customer rates that it actually realizes is substantially higher than that of
the entire nation.
CPFL fits in well with our themes of privatization and infrastructure. Our
confidence in it is such that, since our last report, we have almost doubled the
number of shares held by the Fund, raising CPFL to the Fund's third-largest
position from tenth.
MULTICANAL PARTICIPACOES S.A.
Multicanal Participacoes S.A. ("Multicanal") is the largest cable television
operator in Brazil. Its initial public offering of American Depositary Receipts
in November 1996 has provided the Fund with an unusual opportunity to invest in
a high-growth business that is not involved in infrastructure development.
The most important ingredient in our decision to own Multicanal shares is the
enormous potential in Brazil for the growth of pay-TV services such as cable. A
few statistics make this abundantly clear. 1) Analysts estimate that Brazil's
pay-TV penetration rate at year-end 1996 was 6.8%, compared to 50% in Argentina,
20% in Chile and 12% in Mexico. 2) About 86% of households have a TV set, with
the average number of sets per home more than two. 3) On average, Brazilians
watch 4.5 hours of TV daily. The magnitude of the potential opportunity in
Multicanal shares is put into even sharper focus by the fact that Brazil is the
world's sixth most populous nation and the largest TV viewing market in Latin
America.
There are several company-specific factors that enhance our favorable view of
Multicanal:
- - - Its presence is strong in Brazil's three largest cities (Sao Paulo, Rio de
Janeiro and Belo Horizonte), whose per-capita incomes are among the highest
in the nation.
- - - It is upgrading its networks with high-capacity fiber-optic cable that will
enable it eventually to offer additional services such as telephone service
(i.e., when local service is opened to competition), high-speed internet
access, near video on demand, advertising and an expanded menu of channels.
- - - It will likely be among the winners of the government's auction of new
cable-service territorial concessions, increasing its growth potential even
more.
- - - It is the exclusive outlet for cable programming by Globo, the media giant
that is the largest of Brazil's two programming producers as well as one of
Multicanal's three controlling shareholders.
- - - The Globo connection is especially beneficial to Multicanal in two ways.
First, Globo generates the most Portuguese-language programming, which is
particularly advantageous because the latter is in short supply compared to
offerings in Spanish and English. Second, Multicanal is ideally positioned as
the outlet Globo needs to extend its domination of free-TV to the pay-TV
environment.
- - --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
BANCO ITAU S.A.
Historically, the Fund has chosen to minimize investment in banks and other
financial institutions due to Brazil's tendency toward hyperinflation. The
hyperinflationary environment increased banks' riskiness by making them overly
reliant on capturing "float" income (i.e., interest income earned on funds in
the period between when a bank receives and disburses them) and preventing them
from concentrating on more traditional banking operations.
The re-establishment of economic stability over the last few years suggests that
our bias merits a fresh reassessment. With this in mind, we have added shares of
Banco Itau S.A. ("BI") to the portfolio in recent months.
BI is the second-largest privately owned bank in Brazil in terms of assets,
deposits, loans and net worth. Its main lines of business are commercial and
retail lending, mutual fund management (it is Brazil's largest privately owned
fund manager), credit cards (a card operation in which it has a 33% interest
holds almost half of the market) and insurance (it recently announced the
acquisition of Itau Seguros, one of the largest Brazilian insurers).
We believe that BI shares have excellent long-term appreciation potential for
numerous reasons, including:
- - - DIVERSIFICATION - BI's mixture of business lines reduces its exposure to the
cyclicality of interest-based banking and increases its stream of
more-predictable fee-based earnings.
- - - RISK-AVERSE PROFILE - BI sets aside 100% reserves against loan losses much
earlier than required by law. Its important risk-weighted capital ratio,
furthermore, is about 21% (at year-end 1996), nearly three times the 8% global
standard set by the Bank for International Settlements.
- - - BENEFITS OF TECHNOLOGY - Leading-edge sophistication in areas such as
check-clearing and database management gives BI a clear cost advantage and an
opportunity to generate incremental revenues.
- - - LARGE OPPORTUNITY FOR INSURANCE GROWTH - By various measures, Brazil is
considered "underinsured" compared to many developed nations. The addition of
Itau Seguros should allow BI to meaningfully participate in the Brazilian
insurance sector's expected strong growth.
- - - COMBINATION EQUITY PLAY - BI simultaneously is a high-quality, defensive stock
as well as a more aggressive earnings growth play.
OUTLOOK
Through mid-May, Brazil was the top performing country among the major Morgan
Stanley Capital International Latin American country indices. According to
industry estimates, furthermore, in 1996 Brazil attracted the largest proportion
of U.S. net purchases of Latin American equities and foreigners generally
overweighted Brazil both in their Latin and emerging markets portfolios. Capital
flows into mutual funds specializing in Latin America were most heavily invested
in Brazil in 1996 and currently remain so.
Our favorable outlook for Brazilian equities over the medium term is
undiminished. We are aware that macroeconomic issues such as the trade and
current account deficits are of concern at present, but we believe that
- - --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
they do not imply any major systemic risk. We also note that, with the expected
passage of the re-election amendment and the increasing likelihood of a second
term for President Cardoso, the political environment is unusually stable, which
is positive.
Most important, the privatization program is entering a phase of high
visibility. Privatizations will reduce investors' perception of risk, thus
facilitating a further re-rating of equity valuation multiples. They also will
offer numerous attractive investment opportunities over the next few years. Our
strategy should continue to focus on former state-controlled monopolies that are
expected to be partially or completely privatized. We particularly favor
electric utilities and telecommunications, whose fundamentals and future
prospects are notably positive. Privatizations will benefit the overall
Brazilian market by enlarging its liquidity and offering greater
diversification. Their success is crucial to our expectation that Brazil can
become one of the emerging world's most dynamic equity markets.
We appreciate your interest in the Fund and would be pleased to respond to your
questions or comments.
Respectfully,
[SIG]
Richard W. Watt
President and Chief Investment Officer*
We wish to remind shareholders whose shares are registered in their own names
that they automatically participate in the Fund's dividend reinvestment program.
The automatic Dividend Reinvestment Plan (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 21-22 of
this report.
- - --------------------------------------------------------------------------------
*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 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,
President and Chief Investment Officer of the Fund. Mr. Watt is also Director,
President and Chief Investment Officer 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.
- - --------------------------------------------------------------------------------
6
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
PORTFOLIO SUMMARY - AS OF MARCH 31, 1997 (UNAUDITED)
- - --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
March 31, 1997 March 31, 1996
Banking 3.52 4.76
Cable Television 5.20 0.00
Capital Goods 1.66 3.93
Chemicals 1.65 2.08
Consumer Goods 3.38 12.79
Electric Distribution 7.21 16.82
Electric Generation 1.03 8.24
Food & Beverages 7.67 8.34
Holding Companies 1.78 8.88
Retail 5.56 4.42
Steel 0.00 2.46
Telecommunications 21.35 15.04
Textiles 8.53 6.68
Utilities 22.53 0.00
Other 2.93 4.43
Cash and Other Assets 6.00 1.13
100.00 100.00
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- - ---------------------------------------------------------------------------------------------
1. Telecomunicacoes Brasileiras S.A. Telecommunications 14.0
- - ---------------------------------------------------------------------------------------------
2. Companhia Energetica de Minas Gerais Utilities 11.8
- - ---------------------------------------------------------------------------------------------
3. Companhia Paulista de Forca e Luz Utilities 10.7
- - ---------------------------------------------------------------------------------------------
4. Santista Alimentos S.A. Food & Beverages 5.7
- - ---------------------------------------------------------------------------------------------
5. Globex Utilidades S.A. Retail 5.6
- - ---------------------------------------------------------------------------------------------
6. Multicanal Participacoes S.A. Cable Television 5.2
- - ---------------------------------------------------------------------------------------------
7. Companhia Tecidos Norte de Minas S.A. Textiles 4.7
- - ---------------------------------------------------------------------------------------------
8. Banco Itau S.A. Banking 3.5
- - ---------------------------------------------------------------------------------------------
9. Centrais Eletricas de Santa Catarina
S.A. Electric Distribution 3.4
- - ---------------------------------------------------------------------------------------------
10. Dixie Toga S.A. Consumer Goods 3.4
- - ---------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
7
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS - MARCH 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- - -----------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-94.00%
BANKING-3.52%
Banco Itau S.A. PN....... 8,030,000 $ 4,154,298
-----------
BUSINESS SERVICES-1.22%
Multibras da Amazonia
S.A. PN................. 1,132,000 1,442,719
-----------
CABLE TELEVISION-5.20%
Multicanal Participacoes
S.A. ADR+............... 442,000 6,132,750
-----------
CAPITAL GOODS-1.66%
Trafo Equipamentos
Electricos S.A. PN+..... 906,205 1,959,131
-----------
CHEMICALS-1.65%
S.A. White Martins ON.... 1,197,900,000 1,945,139
-----------
CONSUMER GOODS-3.38%
Dixie Toga S.A. PN....... 4,903,539 3,981,160
-----------
ELECTRIC DISTRIBUTION-7.21%
Centrais Eletricas de
Santa Catarina S.A. PN,
Class B+................ 3,492,771 3,989,854
Companhia de
Electricidade do Estado
da Bahia ON+............ 39,642,300 2,975,278
Companhia de Eletricidade
do Estado do Rio de
Janeiro ON+............. 2,762,000,000 1,538,428
-----------
8,503,560
-----------
ELECTRIC GENERATION-1.03%
Companhia Energetica de
Sao Paulo ADR+.......... 72,000 1,210,680
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGES-7.67%
Brazil Fast Food
Corp.+++(a)............. 500,000 $ 950,000
Companhia Cervejaria
Brahma ON............... 57,495 38,022
Companhia Cervejaria
Brahma PN............... 2,013,951 1,312,847
Santista Alimentos S.A.
ON+..................... 3,105,000 6,742,034
-----------
9,042,903
-----------
HOLDING COMPANIES-1.78%
Brasmotor S.A. PN........ 7,355,000 2,103,214
-----------
PAPER & PULP-0.42%
Industrias de Papel Simao
PN...................... 20,861,609 492,367
-----------
RETAIL-5.56%
Globex Utilidades S.A.
PN...................... 338,000 6,557,376
-----------
TELECOMMUNICATIONS-21.35%
Telecomunicacoes
Brasileiras S.A. ON..... 97,800,000 9,859,865
Telecomunicacoes
Brasileiras S.A. PN
ADR..................... 64,600 6,613,425
Telecomunicacoes de Minas
Gerais S.A. PNB......... 18,612,099 2,521,441
Telecomunicacoes do
Parana S.A. ON+......... 1,821,532 1,186,554
Telecomunicacoes do
Parana S.A. PN.......... 2,402,709 1,544,698
Telecomunicacoes do Rio
de Janeiro S.A. PN+..... 24,763,200 3,436,106
-----------
25,162,089
-----------
</TABLE>
- - --------------------------------------------------------------------------------
8
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
TEXTILES-8.53%
Companhia Tecidos Norte
de Minas S.A. PN........ 13,728,100 $ 5,495,128
Wembly Roupas S.A. PN.... 172,000,000 1,307,151
Wentex Textil S.A. PN+... 888,000 3,248,525
-----------
10,050,804
-----------
TRANSPORTATION-1.29%
Marcopolo S.A. PN........ 6,528,700 1,522,387
-----------
UTILITIES-22.53%
Companhia Energetica de
Ceara PN, A Shares...... 16,800,000 57,097
Companhia Energetica de
Minas Gerais PN......... 337,729,595 13,901,355
Companhia Paulista de
Forca e Luz ON+......... 90,843,841 12,598,499
-----------
26,556,951
-----------
TOTAL INVESTMENTS-94.00%
(Cost $82,303,572) (Notes A,D)......... 110,817,528
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-6.00%...................... 7,069,577
-----------
NET ASSETS-100.00%...................... $117,887,105
-----------
-----------
- - ---------------------------------------------------------
+ Security is non-income producing.
++ Restricted security (See Note F).
(a) With an additional 250,000 warrants attached,
expiring 08/27/01, with no market value.
ADR American Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
PNB Preferred Shares, Class B.
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MARCH 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $82,303,572)
(Note A)............................... $110,817,528
Cash (including $193,288 of foreign
currency with a cost of $193,288) (Note
A)..................................... 6,288,628
Receivables:
Investments sold...................... 2,533,286
Dividends............................. 171,163
Prepaid expenses........................ 8,268
------------
Total Assets............................ 119,818,873
------------
LIABILITIES
Payables:
Investments purchased................. 1,480,507
Advisory fee (Note B)................. 270,194
Administration fees (Note B).......... 20,680
Other accrued expenses................ 160,387
------------
Total Liabilities....................... 1,931,768
------------
NET ASSETS (applicable to 6,564,841
shares of common stock outstanding)
(Note C)............................... $117,887,105
------------
------------
NET ASSET VALUE PER SHARE ($117,887,105
DIVIDED BY 6,564,841)................. $17.96
------------
------------
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......................... 84,174,088
Undistributed net investment income..... 112,358
Accumulated net realized gain on
investments and foreign currency
related transactions................... 5,079,885
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 28,514,209
------------
Net assets applicable to shares
outstanding............................ $117,887,105
------------
------------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED MARCH 31, 1997
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 1,868,655
Interest.............................. 343,539
Less: Foreign taxes withheld.......... (224,061)
-----------
Total Investment Income............... 1,988,133
-----------
Expenses:
Investment advisory fees (Note B)..... 1,236,191
Custodian fees (Note B)............... 198,580
Administration fees (Note B).......... 100,073
Audit and legal fees.................. 88,450
Printing.............................. 76,833
Accounting fees....................... 57,703
Directors' fees....................... 36,500
Insurance............................. 28,313
Transfer agent fees................... 23,200
NYSE listing fees..................... 16,170
Amortization of organizational costs
(Note A)............................. 10,000
Other................................. 13,652
Brazilian taxes (Note A).............. 60,087
-----------
Total Expenses........................ 1,945,752
Less: Fee waivers (Note B)............ (321,991)
-----------
Net Expenses.......................... 1,623,761
-----------
Net Investment Income................. 364,372
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 7,923,168
Foreign currency related
transactions......................... (249,481)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ 24,050,734
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 31,724,421
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $32,088,793
-----------
-----------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended
March 31,
-----------------------------
1997 1996
<S> <C> <C>
-----------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income................. $ 364,372 $ 268,217
Net realized gain/(loss) on
investments and foreign currency
related transactions................. 7,673,687 (2,913,782)
Net change in unrealized
appreciation/(depreciation) in value
of investments and translation of
other assets and liabilities
denominated in foreign currency...... 24,050,734 18,231,683
------------ ------------
Net increase in net assets resulting
from operations.................... 32,088,793 15,586,118
------------ ------------
Dividends and distributions to
shareholders:
Net investment income................. (137,862) --
Net realized gain on investments...... -- (10,254,782)
------------ ------------
Total dividends and distributions to
shareholders....................... (137,862) (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........ 52,191,421 5,539,556
------------ ------------
NET ASSETS
Beginning of year....................... 65,695,684 60,156,128
------------ ------------
End of year (including undistributed net
investment income of $112,358 and
$135,329, respectively)................ $117,887,105 $ 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 Fiscal Years Ended For the Period
March 31, April 10, 1992*
------------------------------------------ through
1997 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)................................ 0.10+ 0.06 (0.12) (0.04) 0.06
Net realized and unrealized gain/(loss) on investments and
foreign currency related transactions...................... 5.69+ 3.32++ (3.80) 9.09 (1.99 )
--------- --------- --------- --------- ---------------
Net increase/(decrease) in net assets resulting from
operations................................................. 5.79 3.38 (3.92) 9.05 (1.93 )
--------- --------- --------- --------- ---------------
Dividends and distributions to shareholders:
Net investment income..................................... (0.02) -- -- (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........... (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.............................. $17.96 $14.18 $13.02 $20.80 $11.83
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Market value, end of period................................. $14.50 $13.875 $14.75 $19.00 $11.25
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
Total investment return(a).................................. 4.67 (b) 8.85% (6.79)% 69.55% (19.16 )%
--------- --------- --------- --------- ---------------
--------- --------- --------- --------- ---------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)..................... $117,887 $65,696 $60,156 $95,820 $54,493
Ratio of expenses to average net assets, net of fee
waivers#................................................... 1.76% 1.76% 1.86% 2.05% 2.45 %(c)
Ratio of expenses to average net assets, excluding fee
waivers.................................................... 2.11% 2.11% 2.13% 2.05% 2.45 %(c)
Ratio of net investment income/(loss) to average net
assets..................................................... 0.39% 0.39% (0.62)% (0.28)% 0.61 %(c)
Portfolio turnover rate..................................... 74% 55% 69% 73% 50 %
Average commission rate per share(d)........................ $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 (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 taxes, if any. If such taxes had not
been imposed, the ratio of expenses to average net assets would have
been 1.69%, 1.73% and 2.02% for the fiscal years ended March 31, 1997,
1995 and 1994, respectively.
(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 10.19% assuming the
shareholder did participate in the rights offering.
(c) Annualized.
(d) 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 subject to
such commissions during the period.
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
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 Board of Directors has established general guidelines for
calculating fair value of non-publicly traded securities. At March 31, 1997, the
Fund held 0.81% 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
$950,000. 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 March 31, 1997, the interest
rate was 5.00% 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.
For the calendar year ending December 31, 1994, the Brazilian Congress imposed a
0.25% withholding tax on financial transactions. 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. Stock exchange transactions are not affected by this tax.
- - --------------------------------------------------------------------------------
14
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (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 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 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.
At March 31, 1997, the Fund reclassified $249,481 of net realized losses from
foreign currency related transactions to undistributed net investment income.
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.
- - --------------------------------------------------------------------------------
15
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
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 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 fiscal year ended March 31, 1997, BEA earned $1,236,191 for advisory
services, of which BEA waived $321,991. 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 fiscal year ended March 31, 1997, BEA was reimbursed $8,474
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 fiscal year ended March 31,
1997, FNBB earned $97,297 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 fiscal year ended March 31,
1997, BSFM earned $91,599 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 March 31, 1997, 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. Estimated offering costs of
$396,250 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 March 31,
1997 was $82,303,572. Accordingly, the net unrealized appreciation of
- - --------------------------------------------------------------------------------
16
<PAGE>
- - --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
investments (including investments denominated in foreign currency) of
$28,513,956, was composed of gross appreciation of $30,684,169 for those
investments having an excess of value over cost and gross depreciation of
$2,170,213 for those investments having an excess of cost over value.
For the fiscal year ended March 31, 1997, purchases and sales of securities,
other than short-term obligations, were $79,963,922 and $66,096,990,
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 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 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
during the fiscal year ended March 31, 1997.
NOTE F. RESTRICTED SECURITIES
Certain of the Fund's investments are restricted as to resale and are valued at
the direction of the Fund's Board of Directors in good faith, at fair value,
after taking into consideration appropriate indications of value. The table
below shows the number of shares held, the acquisition date, aggregate cost,
fair value as of March 31, 1997, share value of such security and percentage of
net assets which the security comprises.
<TABLE>
<CAPTION>
NUMBER OF ACQUISITION FAIR VALUE AT VALUE PER PERCENTAGE OF
SECURITY SHARES DATE COST MARCH 31, 1997 SHARE NET ASSETS
- - ------------------------ ----------- ---------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Brazil Fast Food Corp. 500,000 09/24/96 $ 2,000,000 $ 950,000 $ 1.90 0.81%
</TABLE>
The Fund may incur certain costs in connection with the disposition of the above
security.
- - --------------------------------------------------------------------------------
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The Brazilian Equity Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Brazilian Equity Fund, Inc., including the schedule of investments, as of March
31, 1997 and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brazilian Equity Fund, Inc., as of March 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 12, 1997
- - --------------------------------------------------------------------------------
18
<PAGE>
RESULTS OF ANNUAL MEETING FOR 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>
Dr. 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 W. 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 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.
** Effective January 1, 1997, Emilio Bassini no longer serves as a Director to
the Fund.
In addition to the directors re-elected at the meeting, Peter A. Gordon, George
W. Landau and Martin M. Torino continue to serve as directors of the Fund.
Daniel Sigg resigned as a director of the Fund effective February 11, 1997.
(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>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(March 31, 1997) as to the U.S. federal tax status of distributions received by
the Fund's shareholders in respect of such fiscal year. The $0.021 per share
dividend paid in respect of such fiscal year was from ordinary income. There
were no dividends which would qualify for the dividend received deduction
available to corporate shareholders.
The Fund has made an election under Section 853 to pass through foreign taxes
paid by the Fund to its shareholders of $255,583, equal to $0.039 per share for
the calendar year ended December 31, 1996. Such amount was previously reported
to shareholders of the Fund on their 1996 Form 1099-DIV. This information is
given to meet certain requirements of the Internal Revenue Code of 1986, as
amended.
The Fund intends to make an election under Section 853 to pass through foreign
taxes paid by the Fund to its shareholders of $224,061, equal to $0.034 per
share for the fiscal year ended March 31,1997. Because the Fund's fiscal
- - --------------------------------------------------------------------------------
19
<PAGE>
TAX INFORMATION (UNAUDITED) (CONTINUED)
year is not the calendar year, another notification will be sent in respect of
calendar year 1997. The notification will reflect the amount, if any, that
calendar year 1997 taxpayers will report on their U.S. federal income tax
returns. Such notification will be mailed with Form 1099-DIV in January, 1998.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend and distributions. They will generally not be entitled
to a foreign tax credit or deduction for the foreign withholding taxes paid by
the Fund.
In general, dividends and distributions received by tax-exempt recipients (e.g.,
IRAs and Keoghs) need not be reported as taxable income for U.S. federal income
tax purposes. However, some retirement trusts (e.g., corporate, Keoghs and
403(b)(7) plans) may need this information for their annual information
reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Fund.
- - --------------------------------------------------------------------------------
20
<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
- - --------------------------------------------------------------------------------
21
<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.
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22
<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 March 31, 1997, BEA managed approximately $28.6 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
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<PAGE>
THE BEA GROUP OF FUNDS (CONTINUED)
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Chile Fund, Inc. (CH) BEA Emerging Markets Equity Fund
BEA Global Telecommunications
The First Israel Fund, Inc. (ISL) Fund
The Indonesia Fund, Inc. (IF) BEA High Yield Fund
The Portugal Fund, Inc. (PGF) BEA International Equity Fund
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)
For shareholder information or a
FIXED INCOME copy of a prospectus for any of
BEA Income Fund, Inc. (FBF) the open-end mutual funds, please
BEA Strategic Income Fund, Inc. (FBI) call, 1-800-401-2230.
Visit our website on the
For closed-end fund information Internet:
please call, 1-800-293-1232. http://www.beafunds.com
</TABLE>
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
William W. Priest, Chairman of the Board of Directors
Jr.
Richard W. Watt Director, President and Chief
Investment Officer
Dr. Enrique R. Arzac Director
James J. Cattano Director
Peter A. Gordon Director
George W. Landau Director
Martin M. Torino Director
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. 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-AR-3/97
