<PAGE>
[ART]
The Brazilian
Equity Fund, Inc.
- --------------------
ANNUAL REPORT
MARCH 31, 1998
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................................................................... 1
Portfolio Summary........................................................................... 8
Schedule of Investments..................................................................... 9
Statement of Assets and Liabilities.........................................................11
Statement of Operations.....................................................................12
Statement of Changes in Net Assets..........................................................13
Financial Highlights........................................................................14
Notes to Financial Statements...............................................................15
Report of Independent Accountants...........................................................19
Results of Annual Meeting of Shareholders...................................................20
Tax Information.............................................................................20
Description of InvestLink-SM- Program.......................................................21
</TABLE>
PICTURED ON THE COVER IS A SCENIC VIEW OF RIO DE JANEIRO, BRAZIL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
May 8, 1998
DEAR SHAREHOLDER:
I am writing to report on the activities of The Brazilian Equity Fund, Inc. (the
"Fund") for the year ended March 31, 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 March 31,
1998, total net assets were $67,360,293.
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
The Fund's NAV at March 31, 1998 was $10.26 per share, equating to a return
(based on NAV and assuming reinvestment of dividends and distributions) of -6.6%
during the 12 months ended on that date. By contrast, the Morgan Stanley Capital
International Brazil Index (the "Index") rose by 12.6% in the same period.
Two factors were primarily responsible for the Fund's underperformance. First
was an ongoing vulnerability to the "large-cap effect," in which price action in
the most liquid stocks disproportionately affects the direction of the overall
market. The Index is dominated by Brazil's largest-capitalization stocks such as
Telecomunicacoes Brasileiras S.A. ("Telebras") and Centrais Eletricas
Brasileiras S.A. ("Eletrobras"), but the Fund is legally required to diversify
in a way that prevents it from duplicating the Index's composition. As a result,
it is difficult for the Fund to outperform the Index unless companies like
Telebras and Eletrobras perform relatively poorly.
The second factor was a mixture of unfavorable industry sector weightings and
stock selection:
- - I allocated relatively little to the banking sector due to my conviction that
consumer-oriented stocks would fare best. The latter were hit harder than
expected when the "Asian Flu" of currency devaluation fears struck Brazil in
October and November of last year. Banks, by contrast, fared very well as the
interest-rate climate improved in early 1998.
- - Companhia de Tecidos Norte de Minas S.A. ("Coteminas") is a manufacturer of
textiles and the Fund's ninth-largest holding. In recent months, it made a
private placement of equity that fared poorly under difficult circumstances.
The deal's problems were sufficient to prompt considerable selling of
Coteminas's publicly traded shares.
- - A food stock in the portfolio, Santista Alimentos S.A., suffered from a
painful combination of disappointing operating performance, low liquidity and
the overall pessimism regarding consumer-oriented stocks noted above. A major
restructuring undertaken late in 1997, furthermore, has yet to yield its
expected benefits.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
- - One of my favorite consumer-oriented stocks and the Fund's tenth-largest
position, the merchandiser Companhia Brasileira de Distribuicao Grupo Pao de
Acucar ("CBD"), declined along with the consumer sector in general.
INVESTMENT PERSPECTIVE
BRAZILIAN INTEREST RATES: BEFORE AND AFTER THE CRISIS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Dec-94 56.8%
Jan-95 50.7%
Feb-95 46.6%
Mar-95 67.8%
Apr-95 64.2%
May-95 65.2%
Jun-95 61.0%
Jul-95 60.3%
Aug-95 56.7%
Sep-95 46.8%
Oct-95 43.6%
Nov-95 39.9%
Dec-95 38.1%
Jan-96 35.4%
Feb-96 31.5%
Mar-96 29.8%
Apr-96 27.3%
May-96 26.9%
Jun-96 26.2%
Jul-96 25.6%
Aug-96 26.1%
Sep-96 25.1%
Oct-96 24.7%
Nov-96 23.8%
Dec-96 23.7%
Jan-97 23.0%
Feb-97 21.9%
Mar-97 21.4%
Apr-97 21.8%
May-97 20.6%
Jun-97 20.9%
Jul-97 21.1%
Aug-97 20.7%
Sep-97 20.7%
Oct-97 22.2%
Nov-97 42.7%
Dec-97 41.3%
Jan-98 35.5%
Feb-98 28.6%
Mar-98 30.5%
Apr-98 23.1%
SOURCE: MERRILL LYNCH
</TABLE>
As measured by two important macroeconomic criteria, Brazil has come through its
crisis period of the last few months in impressive fashion. After interest rates
steadily fell from their hyperinflation-era peak of almost 70% in 1995, they
spiked up to about 43% in November, when the government was forced to implement
a series of harsh fiscal austerity measures. Since then, the central bank has
aggressively cut rates in several stages, most recently in mid-April to 23.25%
from 28.0%. In addition, foreign exchange reserves have returned to pre-crisis
levels. After the government spent the relatively huge sum of about $40 billion
to defend the real currency against the Asian Flu, reserves have steadily
climbed back to a record high of $74 billion.
Congress has acted with unprecedented urgency to reduce the nation's fiscal
deficit. Two key policy measures in this regard are a bill to reform the
nation's bloated Social Security system, which is slowly heading toward the end
of the approval process, and the privatization of numerous state-owned entities.
It should be noted that the government's relationship with Congress was dealt a
heavy blow in April by the deaths of two key political figures closely linked
with President Cardoso: Sergio Motta, the Minister of Telecommunications and
Cardoso's chief political collaborator, and Luis Eduardo Magalhaes, the
influential head of Congress's Lower House. The successful enactment of
Cardoso's fiscal and broader legislative agendas is now less certain than
previously.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
Along with measures to cut expenditures, great emphasis is being placed on
selling state-run companies. Privatization is expected to generate total
proceeds of $82 billion during the 1998-2001 period (see chart below).
PRIVATIZATION REVENUES
($ BILLIONS, 1991-2001E) (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
US$ BLN
<S> <C>
1991 1.6
1992 2.4
1993 2.6
1994 2.0
1995 1.0
1996 4.1
1997 22.6
1998E 23.6
1999E 28.3
2000E 15.0
2001E 15.0
E = ESTIMATED
(1) = EXCLUDING DEBT TRANSFER
SOURCES: MERRILL LYNCH, BNDES
</TABLE>
In spite of the crisis climate and the death in April of Mr. Motta, the
government is admirably holding to its schedule for the sale of the national
telecommunications provider, Telebras, during the third quarter of this year.
Several pieces of the regional electricity sector have been privatized in recent
months, furthermore, with more expected through the end of 1999.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
PORTFOLIO STRUCTURE
TOP 10 HOLDINGS, BY ISSUER*
<TABLE>
<CAPTION>
% OF
HOLDING SECTOR NET ASSETS
<S> <C> <C> <C>
1 Telebras Telecommunications 13.4
2 Sabesp Utilities 9.3
3 Eletrobras Electric Generation 6.3
4 CVRD Mining 6.2
5 Petrobras Oil & Natural Gas 5.9
6 CRT Telecommunications 5.5
7 Copel Electric Generation 5.4
8 Telesp Telecommunications 5.1
9 Coteminas Textiles 4.1
10 CBD Food & Beverages 3.5
</TABLE>
- ------------------
* Company names are abbreviations of those found in the chart on page 8.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SECTOR ALLOCATION
<S> <C>
(as a percent of net
assets)
Banking 3.86%
Business Svcs. 0.87%
Cap. Goods 2.37%
Construction 0.08%
Cons. Goods 1.20%
Elec. Dist. 3.85%
Elec. Gen. 14.77%
Food & Beverages 9.17%
Mining 6.19%
Oil & Nat. Gas 8.33%
Retail 5.39%
Telecom. 23.99%
Textiles 5.53%
Utilities 13.12%
Other 1.28%
</TABLE>
Given the investment environment that I have described, I have chosen to
structure the portfolio in a fairly conservative manner. Accordingly, I have
concentrated assets in a combination of privatization plays and high-quality
companies in the private sector. This is reflected in the Fund's broad sector
allocations as well as in its 10 largest holdings, which account for about 65%
of the portfolio.
I would now like to more specifically discuss several of the Fund's largest
holdings.
It is essentially impossible to invest in a diversified portfolio of Brazilian
equities without owning shares of TELEBRAS, which is, by far, the most liquid
Brazilian stock. The upcoming privatization of Telebras will be one of the major
milestones in the evolution of the overall Brazilian equity market.
At about 13% of total assets, Telebras is the Fund's largest single position.
Why? It is the premier opportunity for investors to capitalize on the
privatization of Brazilian state-owned companies. I believe, moreover, that its
shares possess an outstanding risk/return profile: not only is Telebras among
the most cheaply valued telecommunications stocks in the world, but its status
as a diversified holding company makes it inherently less risky than any of the
individual units that will result from its privatization.
Companhia de Saneamento Basico do Estado de Sao Paulo ("SABESP"), the water and
sewage operator for much of the Brazilian state of Sao Paulo, accounts for about
9% of the portfolio. It is the world's second-largest such operator (in terms of
revenues and population served) and the only one in Latin America with publicly
traded shares.
There is a powerful, multi-faceted case in favor of investment in Sabesp. Its
company fundamentals are outstanding. It has privatization-related appeal. It
is, simultaneously, a stock with strong growth prospects and solid defensive
characteristics.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
Sabesp's performance thus far has been somewhat disappointing, though, mainly
due to privatization concerns. This is because the Sao Paulo state government
long ago announced its intention to sell a 20% block of Sabesp's shares to a
strategic partner by mid-1998, but has not yet said anything more specific on
the subject. The resulting uncertainty has served to mute investor enthusiasm
for the stock. Nonetheless, I continue to believe that considerable long-term
appreciation lies ahead.
As is the case with telecommunications, the electricity generation sector is a
major component of the Brazilian market. Among generators, the Fund holds stakes
in ELETROBRAS, the national generating company, as well as two regional
companies, Companhia Paranaense de Energia ("COPEL") and Companhia Energetica de
Brasilia ("CEB").
My strategy within the generating sector is to favor the regionals, whose
operations are strictly defined within territorial boundaries. I have also
underweighted Eletrobras relative to the Index benchmark. In my view, there is
greater risk with Eletrobras for two reasons. First, its operations are much
less clearly defined; and second, its status as one of Brazil's
largest-capitalization stocks confers upon it additional benchmark-related risk.
The final stocks I'd like to discuss are two from the private sector that I
mentioned earlier in the report. These are CBD and COTEMINAS. Although they are
in different businesses (merchandising and textiles, respectively), they both
fit comfortably within my pro-consumer thesis. They also share a couple of very
important characteristics: top-notch management and a strong domestic franchise.
CBD has managed to successfully implement a shrewd expansion program during the
tough macroeconomic environment that started with the spread of the Asian Flu
last fall. The strength of its operating margins is especially impressive in
this context. As for Coteminas, my confidence in its strong domestic position
and eventual regional expansion has not yet been reflected in its share price.
The belief in the long-term prospects for both companies that originally led me
to invest in them remains very much intact.
OUTLOOK
As I see it, the next few months should be the most critical period for Brazil's
economy since the depths of the 1994-95 Mexican peso crisis. This is because the
government is expecting to receive substantial revenue inflows from a
combination of privatization sales and foreign direct investment. Any meaningful
shortfall in such revenues would likely set off a chain reaction that would
begin with rising interest rates and move quickly to knock down stock prices
shortly thereafter.
Recently released data, moreover, suggest that Brazil's macroeconomic
underpinnings may be weakening a bit. The nation's fiscal deficit reached a
level equal to 6.5% of gross domestic product in February, for example; this is
both a relatively high number and a disturbing sign of deficit deterioration.
Many analysts have since raised their estimates for the full-year 1998 deficit
to around 7%. Clearly, any further such deterioration will put even greater
pressure than currently both on the government to maximize its proceeds from
privatizations and on President Cardoso to win re-election and succeed in
enacting detailed fiscal reform measures.
- --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
I also note in this context that, in early May, the government widened its
official trading range, or band, for the real. While the wider band gives the
government greater flexibility in deciding whether to intervene on the real's
behalf, it also raises the currency's potential volatility.
My near-term view on Brazilian equities, therefore, is one of caution. It is
difficult to see much substantive movement either upward or downward in the near
term. The key factor in favor of the market is valuation. This is indicated in
the chart below, which measures the market's price/earnings ratio based on
earnings projected over the next 12 months relative to the same ratio for Latin
American equity markets in aggregate.
BRAZIL: UNDERVALUED RELATIVE TO LATIN MARKETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
%DISCOUNT
<S> <C>
Source: Bear, Stearns & Co.
Inc.
5/10/96 -7.4%
5/17/96 -7.0%
5/24/96 -7.2%
5/31/96 -5.6%
6/7/96 -7.9%
6/14/96 -6.2%
6/21/96 -3.3%
6/28/96 -4.1%
7/5/96 -3.3%
7/12/96 -0.7%
7/19/96 -2.2%
7/26/96 -3.7%
8/2/96 -4.6%
8/9/96 -5.6%
8/18/96 -5.4%
8/23/96 -6.3%
8/30/96 -5.4%
9/6/96 -5.0%
9/13/96 -4.9%
9/20/96 -4.5%
9/27/96 -5.0%
10/4/96 -5.3%
10/18/96 -2.8%
10/25/96 -2.9%
11/1/96 -6.2%
11/8/96 -7.8%
11/15/96 -8.7%
11/22/96 -7.1%
11/29/96 -6.9%
12/6/96 -9.5%
12/13/96 -8.8%
12/20/96 -7.8%
12/27/96 -7.9%
1/3/97 -11.8%
1/10/97 -11.1%
1/17/97 -10.6%
1/24/97 -10.0%
1/31/97 -9.3%
2/7/97 -8.6%
2/14/97 -8.6%
2/21/97 -9.4%
2/28/97 -8.5%
3/7/97 -8.1%
3/14/97 -6.7%
3/21/97 -8.5%
3/28/97 -9.2%
4/4/97 -8.1%
4/11/97 -8.2%
4/18/97 -9.7%
4/25/97 -8.7%
5/2/97 -8.3%
5/9/97 -8.7%
5/15/97 -9.4%
5/23/97 -9.6%
5/30/97 -8.7%
6/6/97 -10.2%
6/13/97 -7.9%
6/20/97 -8.2%
6/27/97 -7.1%
7/4/97 -6.7%
7/11/97 -7.7%
7/18/97 -12.6%
7/25/97 -9.5%
8/1/97 -12.4%
8/8/97 -13.3%
8/15/97 -15.0%
8/22/97 -17.0%
8/29/97 -16.5%
9/5/97 -15.6%
9/12/97 -16.6%
9/19/97 -16.2%
9/26/97 -17.1%
10/3/97 -15.4%
10/10/97 -14.8%
10/17/97 -15.2%
10/24/97 -15.6%
10/31/97 -21.7%
11/7/97 -20.3%
11/14/97 -20.5%
11/21/97 -19.2%
11/28/97 -20.2%
12/5/97 -17.8%
12/12/97 -20.2%
12/19/97 -20.3%
12/26/97 -17.8%
1/2/98 -14.2%
1/9/98 -15.2%
1/16/98 -14.2%
1/23/98 -12.8%
1/30/98 -13.1%
2/6/98 -13.6%
2/13/98 -11.0%
2/20/98 -10.9%
2/27/98 -10.9%
3/6/98 -7.0%
3/13/98 -5.8%
3/20/98 -5.4%
3/27/98 -7.1%
4/3/98 -7.6%
4/10/98 -6.1%
4/17/98 -6.6%
4/24/98 -7.5%
5/1/98 -8.3%
</TABLE>
The chart illustrates quite clearly that, on this basis, Brazil currently trades
at a discount of roughly 8% to aggregate Latin markets. Given the presence of so
many attractive listed Brazilian companies and my bullish long-term perspective,
this strongly suggests that there is compelling value available for those
investors who are willing to make a multi-year commitment to this market.
- --------------------------------------------------------------------------------
6
<PAGE>
LETTER TO SHAREHOLDERS
I appreciate your investment in the Fund and would be pleased to respond to your
questions or comments.
Respectfully,
[SIG]
Richard W. Watt
President and Chief Investment Officer*
- --------------------------------------------------------------------------------
* 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
a Director, President and Chief Investment Officer of the Fund. He also is
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.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
PORTFOLIO SUMMARY - AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
03/31/97 03/31/98
-------- --------
Banking 3.52 3.86
Cable Television 5.20 0.00
Consumer Goods 3.38 1.20
Electric Distribution 7.21 3.85
Electric Generation 1.03 14.77
Food & Beverages 7.67 9.17
Oil & Natural Gas 0.00 8.33
Retail 5.56 5.39
Telecommunications 21.35 23.99
Textiles 8.53 5.53
Utilities 22.53 13.12
Other 8.02 9.51
Cash and Other Assets 6.00 1.28
-------- --------
100.00 100.00
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
1. Telecomunicacoes Brasileiras S.A. Telecommunications 13.4
- -------------------------------------------------------------------------------------------------------------------------------
2. Companhia de Saneamento Basico do Estado de Sao Paulo Utilities 9.3
- -------------------------------------------------------------------------------------------------------------------------------
3. Centrais Eletricas Brasileiras S.A. Electric Generation 6.3
- -------------------------------------------------------------------------------------------------------------------------------
4. Companhia Vale do Rio Doce Mining 6.2
- -------------------------------------------------------------------------------------------------------------------------------
5. Petroleo Brasileiro S.A. Oil & Natural Gas 5.9
- -------------------------------------------------------------------------------------------------------------------------------
6. Companhia Riograndense de Telecomunicacoes Telecommunications 5.5
- -------------------------------------------------------------------------------------------------------------------------------
7. Companhia Paranaense de Energia Electric Generation 5.4
- -------------------------------------------------------------------------------------------------------------------------------
8. Telecomunicacoes de Sao Paulo S.A. Telecommunications 5.1
- -------------------------------------------------------------------------------------------------------------------------------
9. Companhia de Tecidos Norte de Minas S.A. Textiles 4.1
- -------------------------------------------------------------------------------------------------------------------------------
10. Companhia Brasileira de Distribuicao Grupo Pao de Acucar Food & Beverages 3.5
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS - MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-98.72%
BANKING-3.86%
Banco Itau S.A. PN...................... 2,071,000 $ 1,329,666
Uniao de Bancos Brasileiros S.A. GDR.... 35,000 1,268,750
-----------
2,598,416
-----------
BUSINESS SERVICES-0.87%
Multibras da Amazonia S.A. PN........... 1,032,000 589,974
-----------
CAPITAL GOODS-2.37%
Trafo Equipamentos Electricos S.A.
PN+.................................... 906,205 1,594,028
-----------
CONSTRUCTION-0.08%
Empresa Nacional de Comercio Redito e
Participacoes S.A. PN+................. 13,728,100 53,125
-----------
CONSUMER GOODS-1.20%
Dixie Toga S.A. PN...................... 1,768,539 808,830
-----------
ELECTRIC DISTRIBUTION-3.85%
Espirito Santo Centrais Eletricas S.A.
ON..................................... 16,800 1,688,127
Light Servicos de Electricidade S.A.
ON..................................... 2,369,000 906,346
-----------
2,594,473
-----------
ELECTRIC GENERATION-14.77%
Centrais Eletricas Brasileiras S.A.
ADR.................................... 138,682 3,439,438
Centrais Eletricas Brasileiras S.A.
ON..................................... 18,000,000 835,884
Companhia Energetica de Brasilia PN..... 20,099,000 2,032,880
Companhia Paranaense de Energia ADR..... 147,585 2,149,207
Companhia Paranaense de Energia PNB..... 104,593,000 1,491,163
-----------
9,948,572
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGES-9.17%
Bompreco S.A. Supermercados do Nordeste
PN+.................................... 55,000 $ 522,427
Brazil Fast Food Corp., Warrants
(expiring 9/30/01)+.................... 250,000 23,437
Ceval Alimentos S.A. ON................. 500,697,620 1,757,066
Companhia Brasileira de Distribuicao
Grupo Pao de Acucar ADR................ 102,800 2,364,400
Santista Alimentos S.A. ON.............. 1,428,046 1,507,173
-----------
6,174,503
-----------
MINING-6.19%
Companhia Vale do Rio Doce ADR.......... 49,020 1,168,323
Companhia Vale do Rio Doce PN+.......... 125,000 3,001,319
-----------
4,169,642
-----------
OIL & NATURAL GAS-8.33%
Companhia de Gas de Sao Paulo PN+....... 20,450,000 1,570,172
Companhia de Gas de Sao Paulo PN, Pro
Rata Receipts+......................... 1,046,549 82,840
Petroleo Brasileiro S.A. PN............. 16,609,997 3,958,935
-----------
5,611,947
-----------
RETAIL-5.39%
Globex Utilidades S.A. PN+.............. 200,100 1,759,894
Lojas Americanas S.A. PN+............... 105,200,000 647,669
Makro Atacadista S.A.................... 373,000 475,682
Makro Atacadista S.A. GDR............... 60,000 750,000
-----------
3,633,245
-----------
TELECOMMUNICATIONS-23.99%
Companhia Riograndense de
Telecomunicacoes PN.................... 2,926,800 3,681,024
Telecomunicacoes Brasileiras S.A. ON.... 39,949,000 4,128,415
Telecomunicacoes Brasileiras S.A. PN.... 37,100,000 4,884,670
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
Telecomunicacoes de Sao Paulo S.A. PN... 10,680,729 $ 3,466,305
-----------
16,160,414
-----------
TEXTILES-5.53%
Companhia de Tecidos Norte de Minas S.A.
ON..................................... 968,606 251,309
Companhia de Tecidos Norte de Minas S.A.
PN..................................... 10,008,284 2,518,795
Wembley Sociedade Anonima S.A. PN....... 172,000,000 953,034
-----------
3,723,138
-----------
UTILITIES-13.12%
Companhia de Saneamento Basico do Estado
de Sao Paulo ON........................ 27,216,000 6,247,712
Companhia Energetica de Minas Gerais
ADR.................................... 14,600 710,067
Companhia Paulista de Forca e Luz ON.... 13,789,841 1,879,882
Companhia Paulista de Forca e Luz ON,
Pro Rata Receipts+..................... 37,108 11
-----------
8,837,672
-----------
TOTAL INVESTMENTS-98.72%
(Cost $74,493,418) (Notes A,D)........................ 66,497,979
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-1.28%..................................... 862,314
-----------
NET ASSETS-100.00%..................................... $67,360,293
-----------
-----------
- ---------------------------------------------------------
+ Security is non-income producing.
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
PNB Preferred Shares, Class B.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $74,493,418)
(Note A)............................... $66,497,979
Cash (Note A)........................... 691,310
Receivables:
Investments sold...................... 903,592
Dividends............................. 448,506
Prepaid expenses........................ 26,374
-----------
Total Assets............................ 68,567,761
-----------
LIABILITIES
Payables:
Investments purchased................. 843,603
Investment advisory fee (Note B)...... 158,535
Administration fees (Note B).......... 13,571
Other accrued expenses................ 191,759
-----------
Total Liabilities....................... 1,207,468
-----------
NET ASSETS (applicable to 6,564,841
shares of common stock outstanding)
(Note C)............................... $67,360,293
-----------
-----------
NET ASSET VALUE PER SHARE ($67,360,293
DIVIDED BY 6,564,841)................. $10.26
-----------
-----------
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
Accumulated net realized loss on
investments and foreign currency
related transactions................... (8,600,502)
Net unrealized depreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... (7,995,895)
-----------
Net assets applicable to shares
outstanding............................ $67,360,293
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 2,317,670
Interest.............................. 203,058
Less: Foreign taxes withheld.......... (109,737)
------------
Total Investment Income............... 2,410,991
------------
Expenses:
Investment advisory fees (Note B)..... 1,395,180
Custodian fees (Note B)............... 249,979
Audit and legal fees.................. 180,488
Administration fees (Note B).......... 114,192
Printing.............................. 74,408
Accounting fees....................... 73,453
Directors' fees....................... 36,400
Transfer agent fees................... 29,120
NYSE listing fee...................... 16,125
Insurance............................. 14,790
Other................................. 37,314
Brazilian taxes (Note A).............. 378,289
------------
Total Expenses........................ 2,599,738
Less: Fee waivers (Note B)............ (374,673)
------------
Net Expenses........................ 2,225,065
------------
Net Investment Income................. 185,926
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 18,901,832
Foreign currency related
transactions......................... (505,107)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ (36,510,104)
------------
Net realized and unrealized loss on
investments and foreign currency
related transactions................... (18,113,379)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $(17,927,453)
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended
March 31,
-----------------------------
1998 1997
<S> <C> <C>
-----------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 185,926 $ 364,372
Net realized gain on investments and
foreign currency related
transactions......................... 18,396,725 7,673,687
Net change in unrealized
appreciation/(depreciation) in value
of investments and translation of
other assets and liabilities
denominated in foreign currency...... (36,510,104) 24,050,734
------------ ------------
Net increase/(decrease) in net
assets resulting from operations... (17,927,453) 32,088,793
------------ ------------
Dividends and distributions to
shareholders:
Net investment income................. (112,358) (137,862)
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) (137,862)
------------ ------------
Capital share transactions (Note C):
Proceeds from the sale of 1,930,835
shares issued in rights offering..... -- 20,636,740
Offering costs charged to capital..... -- (396,250)
Reduction of offering costs charged to
capital.............................. 27,901 --
------------ ------------
Net increase in net assets resulting
from capital share transactions.... 27,901 20,240,490
------------ ------------
Total increase/(decrease) in net
assets............................. (50,526,812) 52,191,421
------------ ------------
NET ASSETS
Beginning of year....................... 117,887,105 65,695,684
------------ ------------
End of year............................. $ 67,360,293 $117,887,105*
------------ ------------
------------ ------------
</TABLE>
- ------------------
* Includes undistributed net investment income of $112,358.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<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 Fiscal Years Ended March 31, April 10, 1992*
------------------------------------------------------------- through
1998 1997 1996 1995 1994 March 31, 1993
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $17.96 $14.18 $13.02 $20.80 $11.83 $13.79**
----------- ---------- --------- --------- --------- --------
Net investment income/(loss)............ 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................... (2.76) 5.69+ 3.32++ (3.80) 9.09 (1.99)
----------- ---------- --------- --------- --------- --------
Net increase/(decrease) in net assets
resulting from operations.............. (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 gain 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.......... $10.26 $17.96 $14.18 $13.02 $20.80 $11.83
----------- ---------- --------- --------- --------- --------
----------- ---------- --------- --------- --------- --------
Market value, end of period............. $8.375 $14.50 $13.875 $14.75 $19.00 $11.25
----------- ---------- --------- --------- --------- --------
----------- ---------- --------- --------- --------- --------
Total investment return(a).............. (5.55)% 4.67%(b) 8.85% (6.79)% 69.55% (19.16)%
----------- ---------- --------- --------- --------- --------
----------- ---------- --------- --------- --------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)............................... $67,360 $117,887 $65,696 $60,156 $95,820 $54,493
Ratio of expenses to average net assets,
net of fee waivers#.................... 2.07% 1.76% 1.76% 1.86% 2.05% 2.45%(c)
Ratio of expenses to average net assets,
excluding fee waivers.................. 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.................................. 1.72% 1.69% 1.76% 1.73% 2.02% 2.45%(c)
Ratio of net investment income/(loss) to
average net assets..................... 0.17% 0.39% 0.39% (0.62)% (0.28)% 0.61%(c)
Portfolio turnover rate................. 123% 74% 55% 69% 73% 50%
Average commission rate per share(d).... $0.0001 $0.0001 -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and offering expenses of $0.16 per share.
+ Based on average shares outstanding from April 1, 1996 through August
16, 1996, the pricing date of the rights offering, and from August 17,
1996 through 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.
(d) Computed by dividing the total amount of brokerage commissions paid by
the total shares of investment securities purchased and sold during
the respective periods for which commissions were charged, as required
by the SEC for fiscal years beginning on or after September 1, 1995.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
14
<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 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 March 31, 1998, the interest
rate was 5.125% 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 current fiscal year, are deemed to arise on the first day of the
following 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. 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. Effective January
1, 1996, the Brazilian withholding tax on dividend income was reduced from 15%
to 0%. This rate change applies to dividends paid from a company's 1996 profits.
Dividends paid from pre-1996 profits will continue to be taxed at 15%.
- --------------------------------------------------------------------------------
15
<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 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.
At March 31, 1998, the Fund reclassified $185,926 of net realized losses from
foreign currency related transactions to undistributed net investment income. In
addition, the Fund reclassified $251,864 relating to a distribution in excess of
net realized gain on investments to paid-in capital.
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
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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, 1998, BEA earned $1,395,180 for advisory
services, of which BEA waived $374,673. 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, 1998, BEA was reimbursed
$10,192 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 fiscal year ended March 31, 1998, BB earned $121,894 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,
1998, BSFM earned $104,000 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, 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 March 31,
1998 was $75,606,587. Accordingly, the net unrealized depreciation of
investments (including investments denominated in
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
THE BRAZILIAN EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
foreign currency) of $9,108,608, was composed of gross appreciation of
$3,749,602 for those investments having an excess of value over cost and gross
depreciation of $12,858,210 for those investments having an excess of cost over
value.
For the fiscal year ended March 31, 1998, purchases and sales of securities,
other than short-term obligations, were $126,244,877 and $152,742,114,
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
maximum amount outstanding under the credit agreement for the Fund was
$6,000,000 with an average balance of $239,726 and an interest rate of 8.50%
during the fiscal year ended March 31, 1998. The Fund had no amounts outstanding
under the credit agreement at March 31, 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.
- --------------------------------------------------------------------------------
18
<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, 1998 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, 1998 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, 1998, 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 14, 1998
- --------------------------------------------------------------------------------
19
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On July 22, 1997, 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>
Peter A. Gordon 4,478,952 149,957 1,935,932
William W. Priest, Jr. 4,531,500 97,409 1,935,932
Martin M. Torino 4,530,034 98,875 1,935,932
Richard W. Watt 4,543,207 85,702 1,935,932
</TABLE>
In addition to the directors re-elected at the meeting, Dr. Enrique R. Arzac,
James J. Cattano and George W. Landau continue to serve as directors of the
Fund.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the fiscal year ending March 31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
3,668,861 44,520 915,528 1,935,932
</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, 1998) as to the U.S. federal tax status of distributions received by
the Fund's shareholders in respect of such fiscal year. Of the $4.97 per share
dividend paid in respect of such fiscal year $1.19 was from ordinary income and
$3.78 was from net long-term capital gains of which $2.52 was from 28 percent
rate gains and $1.26 was from 20 percent rate gains. There were no dividends
which would qualify for the dividend received deduction available to corporate
shareholders.
The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 1998.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1998. The notification will reflect the
amount, if any, that calendar year 1998 taxpayers will report on their U.S.
federal income tax returns. Such notification will be mailed with Form 1099-DIV
in January, 1999.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividends 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 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
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21
<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 any fractional 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.
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22
<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.
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*InvestLink-SM- is a service mark of Boston EquiServe Limited Partnership.
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<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, 1998, BEA managed approximately $37.6 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
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 Global 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
Dr. Enrique R. Arzac Director
James J. Cattano Director
Peter A. Gordon Director
George W. Landau Director
Martin M. Torino 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
Wendy S. Setnicka 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
BankBoston, N.A.
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
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. 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-3/98
