<PAGE>
As filed with the Securities and Exchange Commission on October 12, 1995
1933 ACT FILE NO. 33-______
1940 ACT FILE NO. 811-5269
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Form N-2
Registration Statement Under The Securities Act of 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No.___ [ ]
and/or
Registration Statement Under The Investment Company Act of 1940 [X]
Amendment No. 7
____________________
THE BRAZIL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code))
Registrant's Telephone Number, including Area Code: (212) 326-6200
____________________
JURIS PADEGS, CHAIRMAN OF THE BOARD
NICHOLAS BRATT, PRESIDENT
C/O SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE) OF AGENTS FOR SERVICE)
____________________
With copies to:
MEREDITH M. BROWN EARL D. WEINER
DEBEVOISE & PLIMPTON SULLIVAN & CROMWELL
875 THIRD AVENUE 125 BROAD STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10004
______________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
It is proposed that this filing will become effective pursuant to section
8(a).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------- ---------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Common Stock,
par value $.01
per share.......... 4,050,000 Shares $20.00 $81,000,000 $27,931.03
===============================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on a
discount from the average of the high and low sales prices for the Fund's
Common Stock reported on the New York Stock Exchange Composite Tape on
October 11, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
THE BRAZIL FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PART A: THE PROSPECTUS
<TABLE>
<CAPTION>
FORM N-2 ITEM NUMBER PROSPECTUS/SAI CAPTION
- -------------------- ----------------------
<S> <C>
1. Outside Front Cover.................................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page............. Cover Page of Prospectus
3. Fee Table and Synopsis............................... Prospectus Summary; Fee Table
4. Financial Highlights................................. Financial Highlights
5. Plan of Distribution................................. Cover Page of Prospectus; Prospectus
Summary; The Offer
6. Selling Shareholders................................. Not Applicable
7. Use of Proceeds...................................... Use of Proceeds
8. General Description of the Registrant................ Cover Page of Prospectus; Prospectus
Summary; Market and Net Asset Value
Information; The Fund; The Offer;
Risk Factors and Special
Considerations; Investment Objective
and Policies; Investment
Restrictions; Common Stock
9. Management........................................... Investment Advisers and Administrator;
Portfolio Transactions and Brokerage;
Custodian; Dividend Paying Agent,
Transfer Agent and Registrar;
Common Stock
10. Capital Stock, Long-Term Debt, and Other Securities. Common Stock; Dividends and Distributions;
Dividend Reinvestment and Cash Purchase
Plan; Taxation
11. Defaults and Arrears on Senior Securities........... Not Applicable
12. Legal Proceedings................................... Not Applicable
13. Table of Contents of the Statement of
Additional Information............................ Table of Contents of Statement of
Additional Information
<CAPTION>
PART B: STATEMENT OF ADDITIONAL INFORMATION
<S> <C>
14. Cover Page.......................................... Cover Page of SAI
15. Table of Contents................................... Cover Page of SAI
16. General Information and History..................... Not Applicable
17. Investment Objective and Policies................... Investment Objective and Policies;
Investment Restrictions
18. Management.......................................... Directors and Officers
19. Control Persons and Principal Holders of Securities. Common Stock
20. Investment Advisory and Other Services.............. Investment Advisers and Administrator;
Custodian; Dividend Paying Agent,
Transfer Agent and Registrar;
Experts
21. Brokerage Allocation and Other Practices............ Portfolio Transactions and Brokerage
22. Tax Status.......................................... Taxation
23. Financial Statements................................ Financial Statements
</TABLE>
____________________
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
__________ Shares
[LOGO] THE BRAZIL FUND, INC.
COMMON STOCK
---------------------
The Brazil Fund, Inc. (the "Fund") is issuing to its shareholders of
record (the "Record Date Shareholders") as of the close of business on
__________, 1995 (the "Record Date") rights (the "Rights") entitling the holders
thereof to subscribe for an aggregate of ______________ shares (the "Shares") of
the Fund's common stock (the "Common Stock") at the rate of one share of Common
Stock for each ____ Rights held and entitling such Record Date Shareholders to
subscribe, subject to certain limitations and subject to allotment, for any
Shares not acquired by exercise of primary subscription Rights (the foregoing
being referred to hereinafter as the "Offer"). Each Record Date Shareholder is
being issued one Right for each full share of Common Stock owned on the Record
Date. No fractional Rights or Shares will be issued. The Rights are
transferable and are expected to be listed for trading on the New York Stock
Exchange (the "NYSE"). The Shares are expected to be listed on the NYSE and
admitted to trading but not listed on the Chicago Stock Exchange (the "CSE").
See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (the "Subscription Price")
will be $ _____.
THE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON ______, 1995
UNLESS EXTENDED AS DESCRIBED HEREIN.
The Fund is a non-diversified, closed-end management investment
company, commenced operations in 1988 and, as of _____, 1995, had net assets of
$_______________. The Fund's investment objective is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Brazilian issuers. It is the policy of the Fund normally to invest at least 70%
of the Fund's net assets in common and preferred stocks of companies registered
with the Brazilian Securities Commission and listed on the Brazilian stock
exchanges or traded in over-the-counter markets. No assurance can be given that
the Fund's investment objective will be realized. Investment in Brazil involves
certain special considerations, such as restrictions on foreign investment and
repatriation of capital, fluctuations of currency exchange rates, and political
and economic risks, that are not normally involved in investments in the United
States and which may be deemed to involve speculative risks. See "Investment
Objective and Policies" and "Risk Factors and Special Considerations and Annex
A, "The Federative Republic of Brazil."
Scudder, Stevens & Clark, Inc. (the "Manager") manages the Fund.
Banco Icatu S.A. (the "Brazilian Adviser") acts as Brazilian adviser to the
Manager. Banco de Boston S.A. (the "Brazilian Administrator") acts as Brazilian
administrator. The address of the Fund is 345 Park Avenue, New York, New York
10154, and its telephone number is (212) 326-6200. All questions relating to
the Offer should be directed to the Information Agent, Georgeson & Company Inc.,
toll free at (800) 223-2064 or collect at (212) 509-6240.
The Fund's currently outstanding shares of Common Stock are, and the
Shares offered hereby will be, listed on the NYSE under the symbol "BZF" and
admitted to trading but not listed on the CSE under the symbol "BZF." The Rights
will trade on the NYSE under the symbol "BZF-RT." The Fund announced the Offer
after the close of trading on the NYSE on ________, 1995. The net asset value
per share of Common Stock at the close of business on ______, 1995 and
_________, 1995 was $_____ and $_____, respectively, and the last sale price of
the Common Stock on the NYSE Composite Tape on those dates was $____ and $____,
respectively.
As a result of the terms of the Offer, Record Date Shareholders who do
not fully exercise their Rights should expect that they will, upon the
completion of the Offer, own a smaller proportional interest in the Fund than
would otherwise be the case. An immediate substantial dilution of the aggregate
net asset value of the shares of Common Stock owned by Record Date Shareholders
who do not fully exercise their Rights is likely to be experienced as a result
of the Offer. SEE "THE OFFER" AND "RISK FACTORS AND SPECIAL CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Subscription Price Sales Load(1) Proceeds to Fund (2)
- --------------------------------------------------------------------------------
Per Share.. $ $ $
- --------------------------------------------------------------------------------
Total...... $ $ $
================================================================================
(1) In connection with the Offer, the Fund has agreed to pay to Smith Barney
Inc. (the "Dealer Manager") and other broker-dealers included in the
selling group to be formed and managed by the Dealer Manager ("Selling
Group Members") a fee of [ ]% of the Subscription Price for each Share
either issued upon the exercise of Rights as a result of their soliciting
efforts or purchased from the Dealer Manager for sale to the public.
Certain other broker-dealers that have executed and delivered a Soliciting
Dealer Agreement and have solicited the exercise of Rights will receive
fees for their soliciting efforts of [ ]% of the Subscription Price,
subject generally to a maximum fee based upon the number of shares of
Common Stock held by each such broker-dealer through The Depository Trust
Company on the Record Date. The Fund will pay to the Dealer Manager a fee
for financial advisory and marketing services in connection with the Offer
equal to [ ]% of the aggregate Subscription Price. The Fund has agreed to
indemnify the Dealer Manager against certain liabilities under the
Securities Act of 1933, as amended. See "The Offer -- Distribution
Arrangements." The total sales load shown in the table assumes that the
exercise of all Rights was solicited by a Selling Group Member.
(2) Before deduction of expenses incurred by the Fund, estimated at
$___________, including up to an aggregate of $_____ to be paid to the
Dealer Manager in reimbursement of its expenses.
Prior to the Expiration Date, the Dealer Manager may offer Shares of
Common Stock, including Shares acquired through the purchase and exercise of
Rights, at prices it sets from time to time. Each price when set will not
exceed the greater of the last sale or current asked price of the Common Stock
on the NYSE plus commission, and an offering price set in any calendar day will
not be increased more than once during that day. Because the Dealer Manager
will determine the price, it may realize profits or losses independent of any
fees referred to under "The Offer -- Distribution Arrangements."
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference. A Statement of
Additional Information, dated _____, 1995 (the "SAI"), containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission (the "Commission"), and is incorporated by reference in its entirety
into this Prospectus. A copy of the SAI may be obtained without charge by
calling the Fund's Information Agent, Georgeson & Company Inc., toll free at
(800) 223-2064 or collect at (212) 509-6240. The table of contents of the SAI
is on page ___ of this Prospectus.
----------------
Smith Barney Inc.
----------------
The date of this Prospectus is ________, 1995.
<PAGE>
In this Prospectus, unless otherwise specified, all references to "billion"
are to one thousand million, to "Dollars," "US$" or "$" are to United States
Dollars and to "Real" (plural "Reais") or "R$" are to Brazilian Reais. On
________________, 1995, the Real-Dollar exchange rate (sell side) in the
commercial exchange market, as published by the Central Bank of Brazil, was
R$______ = $1.00. No representation can be made as to whether the Real or
Dollar amounts in this Prospectus could have been or could be converted into
Reais or Dollars, as the case may be, at such rates, at any other rates or at
all. See Annex A, "The Federative Republic of Brazil -- Balance of Payments and
Foreign Trade" and "-- Foreign Exchange" for information regarding the rates of
exchange between the Real and the Dollar for the five years prior to the date of
this Prospectus. Reference should be made to "Risk Factors and Special
Considerations -- Currency Fluctuations" for a better understanding of the
effect on the Fund of the fluctuation of the exchange rate between the Real and
the Dollar and the significance, in Dollar terms, of amounts set forth in this
Prospectus in Reais and of amounts in comparison based on, or computed by
reference to, such currency.
On July 1, 1994, the Real replaced the Cruzeiro Real as the lawful currency of
Brazil, with each Real exchangeable for 2,750.00 Cruzeiros Reais. The Cruzeiro
Real had replaced the Cruzeiro as the lawful currency of Brazil on August 1,
1993, with each Cruzeiro Real exchangeable for 1,000 Cruzeiros. The Cruzeiro
had replaced the Cruzado Novo as the lawful currency of Brazil under the Collor
Plan of March 15, 1990, with each Cruzeiro exchangeable for one Cruzado Novo.
The Cruzado Novo had replaced the Cruzado as the lawful currency of Brazil under
the Summer Plan of January 16, 1989, with each Cruzado Novo exchangeable for
1,000 Cruzados. The Cruzado had replaced the Cruzeiro as the lawful currency of
Brazil under the Cruzado Plan of February 28, 1986, with each Cruzado
exchangeable for 1,000 pre-Cruzado Plan Cruzeiros.
Brazil has in the past experienced high rates of inflation. As measured by
the General Price Index -- Domestic Supply (a national price index based on a
weighting of three other indices), annualized inflation for the six months ended
June 30, 1995 was __%. Annual inflation was 910% for 1994, 2,709% for 1993 and
1,158% for 1992. Such high levels of inflation, together with the devaluation
of the Brazilian currency in relation to the U.S. Dollar, renders comparisons of
year-to-year financial performance and U.S. Dollar translations less meaningful.
Accordingly, the effects of inflationary distortions should be considered by the
readers of all financial information contained herein. Except as indicated
herein, the exchange rates used herein to convert pre-Cruzado Plan Cruzeiro,
Cruzado, Cruzado Novo, post-Cruzado Plan Cruzeiro, Cruzeiro Real or Real amounts
into U.S. Dollars for a particular period were the commercial rates of exchange
recorded by the Central Bank in effect at the end of such period. These
conversions are provided solely for the convenience of readers of this
Prospectus and should not be construed as implying that the Brazilian currency
amounts represent or have been or could be converted into U.S. Dollars at such
rates.
Certain numbers in this Prospectus have been rounded for ease of presentation.
Since most calculations have been made on unrounded figures, the sum of the
component figures in many of the tables presented may not precisely equal the
totals shown.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the United States Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Fund's shares of Common Stock are listed and/or admitted to trading
on the stock exchanges referred to on the cover page of this Prospectus, and
reports and other information concerning the Fund can be inspected at such
exchanges.
A Registration Statement on Form N-2 (the "Registration Statement") relating
to the Shares has been filed by the Fund with the Commission. This Prospectus
does not contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with
respect to the
2
<PAGE>
Fund and the Shares offered hereby, reference is made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
___________
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ANY OTHER EXCHANGES
ON WHICH THE COMMON STOCK AND/OR THE RIGHTS HAVE BEEN ADMITTED TO TRADING
PRIVILEGES, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
EXPENSE INFORMATION
The following table sets forth certain fees and expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------
Sales Load (as a percentage of offering price)(1)(2)................ [ ]%
Dividend Reinvestment and Cash Purchase Plan Fees................... (3)
ANNUAL FUND OPERATING EXPENSES: Expenses paid by the Fund before it distributes
- ------------------------------
its net investment income, expressed as a percentage of the Fund's net assets
(based on estimated expenses for the fiscal year ending December 31, 1995).
Management Fees .............................................. %
Other expenses ............................................... %
-----
Total Annual Fund Operating Expenses ............................... %
=====
EXAMPLE: (4)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Based on the level of total Fund
operating expenses listed
above, the total expenses
relating to a $1,000
investment in the Fund at the
end of each period, assuming a
5% annual return, are listed
below............................ $____ $____ $____ $____
________
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to [ ]% of the Subscription Price for each Share
either issued upon the exercise of Rights as a result of their
soliciting efforts or purchased from the Dealer Manager for sale to the
public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights
will receive fees for their soliciting efforts of up to [ ]% of the
Subscription Price, subject generally to a maximum fee based upon the
number of shares of Common Stock held by each such broker-dealer through
The Depository Trust Company on the Record Date. The Fund will pay to
the Dealer Manager a fee for financial advisory and marketing services
in connection with the Offer equal to [ ]% of the aggregate Subscription
Price. These fees will be borne by all of the Fund's shareholders,
including those who do not exercise their Rights. The total sales load
shown in the table assumes that the exercise of all Rights was solicited
by Selling Group Members. See "The Offer --Distribution Arrangements."
(2) Does not include expenses of the Fund incurred in connection with the
Offer, estimated at $_______.
(3) There is no charge to participants for reinvesting dividends and capital
gains distributions (the Plan Agent's fees are paid by the Fund).
Participants are charged a $1.00 service fee for each voluntary cash
investment and a pro rata share of brokerage commissions on all open
market purchases.
(4) The Example assumes reinvestment of all dividends and distributions at
net asset value, reflects all recurring and non-recurring fees including
the Sales Load and other expenses of the Fund incurred in connection
with the Offer, assumes that the percentage amounts listed under "Annual
Fund Operating Expenses" remain the same each year, and assumes that all
of the Rights are exercised.
The purpose of the foregoing table and example is to assist Rights holders in
understanding the various costs and expenses that an investor in the Fund bears,
directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL FUND EXPENSES AND RETURN VARY FROM
YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE SHOWN. In addition, while
the example assumes reinvestment of all dividends and distributions at net asset
value, participants in the Fund's Dividend Reinvestment and Cash Purchase Plan
may receive shares issued at a price or value different from net asset value.
See "Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan."
The figures provided under "Other Expenses" are based upon estimated amounts
for the current fiscal year. For more complete descriptions of certain of the
Fund's costs and expenses, see "Investment Advisers and Administrator."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus. Investors should
carefully consider information set forth under the heading "Risk Factors and
Special Considerations."
THE OFFER
The Brazil Fund, Inc. (the "Fund") is issuing to its shareholders of record
(the "Record Date Shareholders") as of the close of business on _____, 1995 (the
"Record Date") transferable rights (the "Rights") to subscribe for an aggregate
of _______ shares of Common Stock (the "Shares") of the Fund. Each Record Date
Shareholder is being issued one Right for each full share of Common Stock owned
on the Record Date. For purposes of determining the number of Shares a Record
Date Shareholder may acquire pursuant to the Offer (as defined below), broker-
dealers whose Shares are held of record by Cede & Co. ("Cede"), as nominee for
The Depository Trust Company ("DTC"), or by any other depository or nominee will
be deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf. The Rights entitle the Record Date
Shareholder to acquire at the Subscription Price (as hereinafter defined) one
Share for each _____ Rights held. No fractional Rights or Shares will be
issued. Any Record Date Shareholder who is issued fewer than ____ Rights may
subscribe, at the Subscription Price, for one full Share during the Subscription
Period, which commences on the date of this Prospectus and ends at 5:00 p.m.,
New York City time, on ____, 1995 unless extended by the Fund (the "Expiration
Date").
The Rights are evidenced by subscription certificates ("Subscription
Certificates") which will be mailed to Record Date Shareholders (except as
discussed below under "Foreign Restrictions"). A Record Date Shareholder's
right to acquire during the Subscription Period at the Subscription Price one
Share for each ____ Rights held is hereinafter referred to as the "Primary
Subscription." Holders of Rights acquired during the Subscription Period
("Rights Holders") may also purchase Shares in the Primary Subscription. All
Rights may be exercised immediately upon receipt and until 5:00 p.m., New York
City time, on the Expiration Date. (Record Date Shareholders and Rights Holders
purchasing Shares in the Primary Subscription are hereinafter referred to as
"Exercising Rights Holders.")
As a result of the terms of the Offer, Record Date Shareholders who do not
fully exercise their Rights should expect that they will, upon the completion of
the Offer, own a smaller proportional interest in the Fund than would otherwise
be the case. An immediate substantial dilution of the aggregate net asset value
of the shares of Common Stock owned by Record Date Shareholders who do not fully
exercise their Rights is likely to be experienced as a result of the Offer. See
"Risk Factors and Special Considerations -- Special Considerations."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to him
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) is entitled to subscribe for Shares which
were not otherwise subscribed for by others on Primary Subscription (the "Over-
Subscription Privilege" and, together with the Primary Subscription, the
"Offer"). Shares acquired pursuant to the Over-Subscription Privilege are
subject to allotment, which is more fully discussed under "The Offer -- Over-
Subscription Privilege."
SUBSCRIPTION PRICE
The Subscription Price per Share (the "Subscription Price") is $________.
5
<PAGE>
SOLICITING FEES
The Fund has agreed to pay to Smith Barney Inc. (the "Dealer Manager"
and other broker-dealers included in the selling group to be formed and managed
by the Dealer Manager ("Selling Group Members") fees equal to [ ] of the
Subscription Price for Shares either issued upon the exercise of Rights as a
result of their soliciting efforts or purchased from the Dealer Manager for sale
to the public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights will
receive fees for their soliciting efforts of up to [ ] of the Subscription
Price, subject generally to a maximum fee based upon the number of shares of
Common Stock held by each such broker-dealer through The Depository Trust
Company on the Record Date.
INFORMATION AGENT
The Information Agent for the Offer is:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
or
Call Collect: (212) 509-6240
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
Event Date
- ------------------------------------- --------------------------------
<S> <C>
Record Date ________, 1995
Subscription Period ________, 1995 - ________, 1995
Expiration Date ________, 1995 (unless extended)
Subscription Certificates and Payment ________, 1995
for Shares Due
Notices of Guaranteed Delivery Due ________, 1995
Subscription Certificates and Payment ________, 1995
Due Pursuant to Notice of Guaranteed
Delivery
Confirmation Date ________, 1995
</TABLE>
EXERCISING RIGHTS
Rights will be evidenced by Subscription Certificates (see Appendix B)
and may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to BancBoston State Street Investor Securities, Boston, Massachusetts
(the "Subscription Agent"). Exercising Rights Holders will have no right to
rescind a purchase after the Subscription Agent has received payment, either by
means of a notice of guaranteed delivery or a check. See "The Offer -- Exercise
of Rights" and "The Offer -- Payment for Shares."
SALE OF RIGHTS
The Rights are transferable until the Expiration Date. The Rights are
expected to be listed for trading on the New York Stock Exchange (the "NYSE"),
and the Shares are expected to be listed for trading on the NYSE and admitted
for trading but not listed on the Chicago Stock Exchange (the "CSE"). The Fund
has used its best efforts to ensure that an adequate trading market for the
Rights will exist, although no assurance can be given that a market for the
Rights will develop. Trading in the Rights on the NYSE may be conducted until
the close of trading on the NYSE on the last Business Day (as defined below)
prior to the Expiration Date. The Fund expects that a market for the Rights
will develop and that the value of the Rights, if any, will be reflected by the
market price. Rights may be sold by individual holders or may be submitted to
the Subscription Agent for sale by the Dealer Manager. Any Rights to be
submitted by the Subscription Agent to the Dealer Manager for sale must be
received by the Subscription Agent at or prior to 5:00 p.m., New York City time,
on ______, 1995, two Business Days prior to the
6
<PAGE>
Expiration Date, due to normal settlement procedures. Trading of the Rights on
the NYSE will be conducted on a when-issued basis commencing on ______, 1995 and
thereafter on a regular way basis from ______, 1995 until and including the last
Business Day prior to the Expiration Date. If the Subscription Agent receives
Rights for sale in a timely manner, it will either sell the Rights to the Dealer
Manager or the Dealer Manager will use its best efforts to sell the Rights on
the NYSE. The Dealer Manager will also either purchase or attempt to sell any
Rights submitted to it by the Subscription Agent that a Record Date Shareholder
is unable to exercise because such Rights represent the right to subscribe for
less than one Share. Any commissions will be paid by the selling Record Date
Shareholder. Neither the Fund nor the Subscription Agent nor the Dealer Manager
will be responsible if Rights cannot be sold and none of them has guaranteed any
minimum sale price for the Rights. For purposes of this Prospectus, a "Business
Day" shall mean any day on which trading is conducted on the NYSE. Record Date
Shareholders are urged to obtain a recent trading price for the Rights on the
NYSE from their broker, bank, financial adviser or the financial press.
Inquiries by Exercising Rights Holders should be directed to the Information
Agent.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) (such shareholders being referred to hereinafter as "Foreign Record
Date Shareholders"). The Rights to which such Subscription Certificates relate
will be held by the Subscription Agent for such Foreign Record Date
Shareholders' accounts until instructions are received to exercise, sell or
transfer the Rights. If no instructions have been received by 12:00 noon, New
York City time, on _______, 1995, two Business Days prior to the Expiration
Date, the Rights of those Foreign Record Date Shareholders will be transferred
by the Subscription Agent to the Dealer Manager who will either purchase the
Rights or will use its best efforts to sell the Rights on the NYSE. The net
proceeds from the sale of those Rights by the Dealer Manager will be remitted to
the Foreign Record Date Shareholders.
USE OF PROCEEDS
The net proceeds of the Offer will be invested in accordance with the
policies set forth under "Investment Objective and Policies." The Board of
Directors of the Fund has determined that it would be in the best interests of
the Fund and its shareholders to increase the assets of the Fund available for
investment so that the Fund will be in a better position to take advantage of
investment opportunities that the Fund anticipates in Brazil. In addition, the
Offer affords existing shareholders the opportunity to purchase additional
shares of the Fund's Common Stock at a price that may be below market value
and/or net asset value without incurring the transaction costs associated with
open-market purchases. See "The Offer -- Purpose of the Offer."
INFORMATION REGARDING THE FUND
The Fund is a non-diversified, closed-end management investment company
designed to facilitate international diversification for U.S. and other
investors who desire to participate in the Brazilian securities markets. The
investment objective of the Fund is to seek long-term capital appreciation
through investment in securities, primarily equity securities, of Brazilian
issuers. It is the policy of the Fund normally to invest at least 70% of its
net assets in common and preferred stocks of companies registered with the
Brazilian Securities Commission and listed on the Brazilian stock exchanges or
traded in over-the-counter markets. The Fund's investment objective is subject
to certain investment policies and restrictions described under "Investment
Objective and Policies" in this Prospectus and "Investment Restrictions" in the
SAI.
INFORMATION REGARDING THE MANAGER, THE BRAZILIAN ADVISER AND THE BRAZILIAN
ADMINISTRATOR
Scudder, Stevens & Clark, Inc. (the "Manager"), a leading global
investment manager, acts as investment adviser to and manager of the Fund. As
of December 31, 1994, the Manager and its affiliates had over $90 billion of
assets under their supervision, of which more than $22 billion was invested in
7
<PAGE>
non-U.S. securities. Banco Icatu S.A. (the "Brazilian Adviser") acts as
Brazilian adviser to the Manager. Banco de Boston S.A. (the "Brazilian
Administrator") acts as Brazilian administrator for the Fund. See "Investment
Advisers and Administrator."
Under the Investment Advisory, Management and Administration Agreement
between the Manager and the Fund, the Manager receives a monthly fee at an
annual rate equal to 1.175% of the Fund's average weekly net assets. The
Manager has agreed to waive a portion of its fee such that the effective rate
with respect to net assets in excess of $300,000,000 is 1.075%. A portion of
the Manager's fee is paid by the Manager to the Brazilian Adviser and the
Brazilian Administrator. See "Investment Advisers and Administrator."
INFORMATION REGARDING THE CUSTODIAN
Brown Brothers Harriman & Co. acts as custodian for the Fund. See
"Custodian."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution. An immediate substantial dilution of the aggregate net asset
value of the shares of Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to be experienced as a result of the Offer
because the Subscription Price is likely to be less than the Fund's then-net
asset value per share, and the number of shares outstanding after the Offer is
likely to increase in a greater percentage than the percentage increase in the
Fund's assets. In addition, as a result of the terms of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. Although it is not possible to state
precisely the amount of such a decrease in value, because it is not known at
this time what the net asset value per share will be at the Expiration Date,
such dilution could be substantial. For example, assuming that all Rights are
exercised and that the Subscription Price of $________ is ____% below the Fund's
net asset value of $______ per share on ________, 1995, the Fund's net asset
value per share would be reduced by approximately $_____ per share.
Unrealized Appreciation. As of [September 30], 1995, there was
approximately $[190] million of net unrealized appreciation in the Fund's net
assets of approximately $[327] million; if realized and distributed, or deemed
distributed, such gains would, in general, be taxable to shareholders, including
holders at that time of Shares acquired upon the exercise of the Rights. See
"Taxation" in this Prospectus and "Taxation -- United States Federal Income
Taxes -- General," "-- Distributions" and "-- Non-U.S. Shareholders" in the SAI.
Investments in Brazil. Investing in securities of Brazilian companies
and of the Government (the "Government") of the Federative Republic of Brazil
("Brazil") involves certain considerations not typically associated with
investing in securities of United States companies or the United States
government, including (1) investment and repatriation controls, which could
affect the Fund's ability to operate, (2) fluctuations in the rate of exchange
between the Real and the Dollar, (3) the greater price volatility and lesser
liquidity that characterize Brazilian securities markets, as compared with U.S.
markets, (4) Brazil's difficulties since the 1980s in complying with its debt
and debt service obligations, (5) the effect that a current account deficit
could have on economic stability and the Government's economic policy, (6) high
rates of inflation, (7) governmental involvement in and influence on the private
sector, (8) the sustainability of the Plano Real and (9) political and other
considerations. See generally "Risk Factors and Special Considerations."
Non-Diversified Status. The Fund is classified as a "non-diversified"
investment company under the U.S. Investment Company Act of 1940, as amended
(the "1940 Act"), which means that the Fund is not limited by the 1940 Act as to
the percentage of its assets that may be invested in the securities of a
8
<PAGE>
single issuer. As a non-diversified investment company, the Fund may invest in a
smaller number of issuers, and, as a result, may be subject to greater risk with
respect to portfolio securities.
Discount from Net Asset Value. Shares of closed-end investment
companies frequently trade at a discount from net asset value. Since the Fund's
commencement of operations in 1988, the Fund's shares have traded at both a
discount and a premium in relation to net asset value. The Fund cannot predict
whether the Common Stock will in the future trade at a premium or discount to
net asset value. The risk of the Common Stock trading at a discount is a risk
separate from the risk of a decline in the Fund's net asset value. See "Market
and Net Asset Value Information" in this Prospectus and "Net Asset Value" in the
SAI.
Charter Provisions. Certain anti-takeover provisions will make a change
in the Fund's business or management more difficult without the approval of the
Fund's Board of Directors and may have the effect of depriving stockholders of
an opportunity to sell their shares at a premium above the prevailing market
price. See "Common Stock -- Special Voting Provisions."
9
<PAGE>
FINANCIAL HIGHLIGHTS
This table presents selected data for a share of the Fund's Common Stock
outstanding throughout each period and other performance information derived
from the Fund's financial statements, which have been audited by Price
Waterhouse LLP, independent accountants, and from market price data. This
information should be read in conjunction with the Financial Statements and
Notes thereto as of June 30, 1995 and the related Report of Independent
Accountants which appear in the SAI.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
FOR THE PERIOD
SIX APRIL 8, 1988
MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
Per Share Operating JUNE 30, DECEMBER 31,
Performances 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------- ------- -------- ------- ------ ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period..................... $ 31.10 $20.98 $14.12 $13.80 $ 5.97 $ 18.85 $ 12.90 11.54(d)
Net Investment Income
(Loss)(a)..................... .26 (.17) .10 .19 .95 1.32 .88 .42
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions(a)............. (6.65) 12.75 7.58 .79 6.88 (14.08) 8.25 1.63
Total From Investment
Operations...................... (6.39) 12.58 7.68 .98 7.83 (12.76) 9.13 2.05
Less Distributions From:
Net Investment Income.......... -- -- (.08) -- -- (.12) .89 .41
Net Realized Gains on
Investments................... (.24) (2.46) (.74) (.66) -- -- (1.36) (.28)
Paid-in Capital................ -- -- -- -- -- -- (.93) --
Total Distributions.............. (.24) (2.46) (.82) (.66) -- (.12) (3.18) (.69)
Net Asset Value, End of Period... $ 24.47 $31.10 $20.98 $14.12 $ 13.80 $ 5.97 $ 18.85 $ 12.90
Market Value, End of Period...... $ 25.13 $33.00 $21.13 $13.63 $ 14.75 $ 6.63 $ 12.88 $ 7.88
TOTAL INVESTMENT RETURN
Per Share Market Value (%)....... (23.10)** 69.81 60.89 (3.91) 122.64 (47.98) 105.82 (31.25)
Per Share Net Asset Value (%)(b). (20.50)** 61.09 54.19 6.43 131.16 (67.98) 83.96 21.99
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
($ millions) .................. 297 377 254 171 167 72 227 155
Ratio of Operating
Expenses to Average Net
Assets (%) (c)................ 1.67* 1.71 1.84 2.22 2.15 2.25 2.01 1.90*
Ratio of Net Investment
Income (Loss) to Average
Net Assets (%)................ 2.02* (.58) .56 1.13 8.13 11.27 4.76 4.70*
Portfolio Turnover Rate (%)..... 9.91* 5.76 4.67 7.94 12.69 4.31 14.02 .74*
- --------------------------
</TABLE>
(a) Realized and unrealized currency losses on the Fund's interest bearing
accounts amounted to $.31, $.86 and $2.96 per share in 1992, 1991 and 1990
respectively, of which $1.27 per share included in net investment income in
1990.
(b) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance
of a shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund during each period.
(c) For the years ended December 31, 1993, 1992, 1990 and 1989 the ratio of
expenses, including the Brazilian repatriation tax, to average net assets
was 2.22%, 2.39%, 2.56% and 3.00%, respectively.
(d) Beginning per share amount reflects $12.50 initial public offering price net
of underwriting discount and offering expenses ($.96 per share).
* Not annualized.
** Annualized.
10
<PAGE>
MARKET AND NET ASSET VALUE INFORMATION
The Fund's outstanding Common Stock is, and the Shares will be, listed on the
NYSE and admitted to trading but not listed on the CSE. The Fund's shares
commenced trading on the NYSE on March 31, 1988 and on the CSE on May 28, 1988.
The following table shows for the periods indicated (1) the high and low sales
prices for transactions in the Fund's shares on the NYSE Composite Tape, (2) the
net asset value as determined on the date closest to each quotation and (3) the
discount or premium to net asset value (expressed as a percentage) represented
by the quotation.
<TABLE>
<CAPTION>
High Sales Net Asset Premium Low Sales Net Asset Premium
Period Price Value (Discount) Price Value (Discount)
- --------------------------- -------- -------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jan. 1 - March 31, 1993.... 16.50 16.82 (0.02) 13.38 14.70 (0.09)
April 1 - June 30, 1993.... 18.88 19.35 (0.02) 14.25 16.02 (0.11)
July 1 - Sep. 30, 1993..... 20.88 27.66 (0.08) 15.88 17.94 (0.12)
Oct. 1 - Dec. 31, 1993..... 22.00 20.83 0.06 17.63 20.70 (0.15)
Jan. 1 - March 31, 1994.... 31.75 29.78 0.07 19.75 20.98 (0.06)
April 1 - June 30, 1994.... 25.63 27.05 (0.05) 18.75 19.07 (0.02)
July 1 - Sep. 30, 1994..... 36.13 37.44 (0.04) 23.25 22.38 0.04
Oct. 1 - Dec. 31, 1994..... 36.88 35.83 0.03 30.38 30.59 (0.01)
Jan. 1 - March 31, 1995.... 32.88 31.09 0.06 19.00 22.42 (0.15)
April 1 - June 30, 1995.... 29.13 26.26 0.11 22.75 22.36 0.02
July 1 - September 30, 1995 28.75 26.13 0.10 24.88 24.43 0.02
</TABLE>
Since commencement of the Fund's operations in 1988, the Fund's shares have
traded in the market above, at and below net asset value. Since 1993, the
Fund's shares have generally traded at a slight discount to net asset value.
Shares of closed-end investment companies frequently trade at a discount to net
asset value. The Fund cannot predict whether the Fund's shares will in the
future trade at a premium or discount to net asset value, or the level of such
premium or discount. On ___________, 1995, the last price of the Fund's shares
on the NYSE Composite Tape was $______, which represented a [premium/discount]
of ____% [above/below] the net asset value per share of $_____ (which reflects a
dividend of $___ per share payable on October __, 1995 to shareholders of record
as of October ____, 1995).
THE FUND
The Fund, incorporated in Maryland on September 25, 1987, is a non-
diversified, closed-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund was the first
vehicle for investing in Brazilian securities to be registered for public
offering in the United States.
The Fund's investment objective is long-term capital appreciation through
investment in securities, primarily equity securities, of Brazilian issuers.
The Fund's policy is normally to invest at least 70% of its total assets in
common and preferred stocks of companies registered with the Brazilian
Securities Commission and listed on the Brazilian stock exchanges (the "Stock
Exchanges") or traded in Brazilian over-the-counter markets. The Fund is
designed to be a vehicle for international investment by United States and other
investors who desire to participate in the Brazilian securities market. The
Fund's Manager is Scudder, Stevens & Clark, Inc., a United States investment
counsel firm. Banco Icatu S.A. acts as Brazilian Adviser to the Manager, and
Banco de Boston S.A. acts as Brazilian Administrator. See "Investment Advisers
and Administrator."
11
<PAGE>
As of __________, 1995, the Fund's net asset value was $________. As of
_________, 1995, ___% of the Fund's investments consisted of Brazilian common
and preferred stocks, with the balance invested in short-term investments.
THE OFFER
TERMS OF THE OFFER
The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each share of Common Stock owned on the Record Date. For purposes of
determining the maximum number of Shares an Exercising Rights Holder may acquire
pursuant to the Offer, broker-dealers whose Shares are held of record by Cede or
by any other depository or nominee will be deemed to be the holders of the
Rights that are issued to Cede or such other depository or nominee on their
behalf. No fractional Rights or Shares will be issued. The Rights entitle the
holders thereof to acquire at the Subscription Price one Share for each _____
Rights held (the "Primary Subscription"). Any Record Date Shareholder who is
issued fewer than ____ Rights may subscribe, at the Subscription Price, for one
full Share. The Rights are evidenced by Subscription Certificates which will be
mailed to Record Date Shareholders, except that Subscription Certificates will
not be mailed to Foreign Record Date Shareholders. The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders' accounts until instructions are received to
exercise, sell or transfer the Rights. If no instructions have been received by
12:00 noon, New York City time, on ____________, 1995, two Business Days prior
to the Expiration Date, the Rights of those Foreign Record Date Shareholders
will be transferred by the Subscription Agent to the Dealer Manager, who will
either purchase the Rights or use its best efforts to sell the Rights on the
NYSE. The net proceeds from the sale of those Rights by the Dealer Manager will
be remitted to the Foreign Record Date Shareholders. See "Sale of Rights --
Sales through Subscription Agent and Dealer Manager."
Completed Subscription Certificates may be delivered to the Subscription Agent
at any time during the Subscription Period, which commences on the date of this
Prospectus and ends at 5:00 p.m., New York City time, on __________, 1995, the
Expiration Date (unless extended by the Fund). Parties that purchase Rights
prior to the Expiration Date ("Rights Holders") may also purchase Shares in the
Primary Subscription. All Rights may be exercised immediately upon receipt and
until 5:00 p.m. on the Expiration Date.
Any Record Date Shareholder who fully exercises all Rights initially issued to
him (other than those Rights which cannot be exercised because they represent
the right to acquire less than one Share) is entitled to subscribe for Shares
which were not otherwise subscribed for by Exercising Rights Holders on the
Primary Subscription. Record Date Shareholders such as broker-dealers, banks,
and other professional intermediaries, who hold shares on behalf of clients, may
participate in the Over-Subscription Privilege for a client if the client fully
exercises all Rights attributable to him. Shares acquired pursuant to the Over-
Subscription Privilege may be subject to allotment, which is more fully
discussed below under "Over-Subscription Privilege."
Rights will be evidenced by Subscription Certificates (see Appendix B) and may
be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to the Subscription Agent. The method by which Rights may be exercised
and Shares paid for is set forth below in "Exercise of Rights" and "Payment for
Shares." An Exercising Rights Holder will have no right to rescind a purchase
after the Subscription Agent has received payment, either by means of a notice
of guaranteed delivery or a check. See "Payment for Shares" below. Shares
issued pursuant to an exercise of Rights will be listed on the NYSE and admitted
to trading but not listed on the CSE.
The Rights are transferable until the Expiration Date and will be admitted for
trading on the NYSE. Assuming a market exists for the Rights, the Rights may be
purchased and sold through usual
12
<PAGE>
brokerage channels, or delivered at or before
5:00 p.m., New York City time, on ___________, 1995, to the Subscription Agent
for sale through the Dealer Manager. The Fund has used its best efforts to
ensure that an adequate trading market for the Rights will exist, although no
assurance can be given that a market for the Rights will develop. Trading in
the Rights on the NYSE may be conducted until and including the close of trading
on the last NYSE trading day prior to the Expiration Date. The method by which
Rights may be transferred is set forth below in "Sale of Rights." The
underlying Shares will also be admitted for trading on the NYSE. Since
fractional Shares will not be issued, Record Date Shareholders who receive fewer
than ____ Rights will be entitled to purchase one Share. Record Date
Shareholders who, after exercising their Rights, are left with fewer than _____
Rights, will be unable to exercise such Rights and will not be entitled to
receive any cash, from the Fund, in lieu of such remaining Rights. However, the
Subscription Agent will automatically request the Dealer Manager to attempt to
sell the number of Rights which a Record Date Shareholder is unable to exercise
for such reason after return of a completed and fully exercised Subscription
Certificate to the Subscription Agent at or before 5:00 p.m., New York City
time, on ______, 1995, and the Subscription Agent will remit the proceeds of any
such sale, net of commissions, to the Record Date Shareholder.
The distribution to Record Date Shareholders of transferable Rights which
themselves may have intrinsic value will also afford non-participating Record
Date Shareholders the potential of receiving a cash payment upon sale of such
Rights, which may be viewed as compensation for the possible dilution of their
interest in the Fund.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of investment opportunities in Brazil. The Fund believes that the
proceeds of the Offer will permit it to take advantage of the new investment
opportunities that the Fund anticipates in Brazil without having to sell
existing portfolio holdings, which would, in general, cause gains recognized by
the Fund on appreciated positions to become taxable to shareholders. In
addition, the Offer affords existing shareholders the opportunity to purchase
additional shares of the Fund's Common Stock at a price that may be below market
value and/or net asset value without incurring the transaction costs associated
with open-market purchases.
The Manager and the Brazilian Adviser will benefit from the Offer because
their fees are based on the average daily net assets of the Fund. It is not
possible to state precisely the amount of additional compensation the Manager
and the Brazilian Adviser will receive as a result of the Offer because it is
not known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities which will fluctuate
in value. However, in the event that all the Rights are exercised in full and
net proceeds of the Offer are $______, the Manager and the Brazilian Adviser
would receive additional annual advisory fees (net, in the case of the Manager,
of the Brazilian Adviser's fee, which is paid by the Manager) of ______ and
______, respectively, based on the amount of such proceeds. Three of the Fund's
seven Directors who voted to authorize the Offer are "interested persons" of the
Fund as that term is defined in the 1940 Act. These three Directors could
benefit indirectly from the Offer because of their affiliations with the Manager
or the Brazilian Adviser. See "Investment Advisers and Administrator" in this
Prospectus and "Directors and Officers" in the SAI.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the Offer. Any such future rights offering will be
made in accordance with the 1940 Act.
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for by Exercising Rights Holders will be offered, by
means of the Over- Subscription Privilege, to the Record Date Shareholders who
have exercised all exercisable Rights issued to them and who wish to acquire
more than the number of Shares for which the Rights issued to them are
13
<PAGE>
exercisable. Record Date Shareholders such as broker-dealers, banks, and other
professional intermediaries, who hold shares on behalf of clients, may
participate in the Over-Subscription Privilege for a client if the client
fully exercises all Rights attributable to him. Record Date Shareholders
should indicate on their Subscription Certificates how many Shares they are
willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Shares remain, all over-subscriptions will be honored in full.
If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among
those who over-subscribe based on the number of Rights originally issued to
them by the Fund. The percentage of remaining Shares each over-subscribing
Record Date Shareholder may acquire may be rounded up or down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to ensure that the total number of Shares available for
over-subscription is distributed on a pro rata basis (except to the extent
that individual Record Date Shareholders request fewer shares pursuant to the
Over-Subscription Privilege than would otherwise be their pro rata
allocation).
The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the Rights
will be $_____. The Fund does not have the right to withdraw the Offer after
the Rights have been distributed.
The Fund announced the Offer after the close of trading on the NYSE on
_____, 1995. The net asset value per share of Common Stock at the close of
business on ____, 1995 and on ____, 1995 was $____ and $____, respectively,
and the last reported sale price of a share of the Fund's Common Stock on the
NYSE Composite Tape on those dates was $_____ and $_____, respectively. The
Subscription Price of $____ is approximately a ____% discount to the Fund's
net asset value per share on _____, 1995. Information about the Fund's net
asset value may be obtained by calling the Information Agent at (800) 223-2064
(toll free) or (212) 509-6240 (collect).
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on ______, 1995,
the Expiration Date (unless extended by the Fund). Rights will expire on the
Expiration Date and thereafter may not be exercised.
SUBSCRIPTION AGENT
The Subscription Agent, The First National Bank of Boston, will receive for
its administrative, processing, invoicing and other services as Subscription
Agent a fee estimated to be $______, including reimbursement for all out-of-
pocket expenses related to the Offer. Questions regarding the Subscription
Certificates should be directed to BancBoston State Street Investor Services,
150 Royall Street, Canton, Massachusetts 02021 (telephone (617) 575-2700).
Shareholders may also consult their brokers or nominees. Signed Subscription
Certificates (see Appendix B) should be sent to BancBoston State Street
Investor Services, by one of the methods described below:
(1) BY MAIL: [The First National Bank of Boston
Shareholder Services Division
P.O. Box 1889
Mail Stop 45-01-19
Boston,
Massachusetts 02105
(2) BY HAND: BancBoston Trust Company of New York
55 Broadway, Third Floor
New York, New York 10006
14
<PAGE>
(3) BY OVERNIGHT COURIER: The First National Bank of Boston
Shareholder Services Division
Mail Stop 45-01-19
150 Royall Street
Canton, Massachusetts 02021]
(4) BY FACSIMILE (TELECOPIER): (617) 575-2232, with the original Subscription
Certificate to be sent by mail, hand or
overnight courier. Confirm facsimile by
telephone to (617) 575-2700.
DELIVERY BY METHODS OTHER THAN THOSE STATED ABOVE WILL NOT CONSTITUTE GOOD
DELIVERY.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
or
Call Collect: (212) 509-6240
The Information Agent will receive a fee estimated to be $_____, and
reimbursement for all out-of-pocket expenses related to the Offer.
SALES OF RIGHTS
Sales through Subscription Agent and Dealer Manager. Record Date
Shareholders who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised rights through the
Dealer Manager. Subscription Certificates representing the Rights to be sold
by the Dealer Manager must be received by the Subscription Agent prior to 5:00
p.m., New York City time, on ______, 1995. Upon the timely receipt by the
Subscription Agent of appropriate instructions to sell Rights, the
Subscription Agent will request the Dealer Manager to use its best efforts to
complete the sale and the Subscription Agent will remit the proceeds of the
sale, net of commissions, to the Record Date Shareholders. If the Rights can
be sold, sales of such Rights will be deemed to have been effected at the
weighted-average price received by the Dealer Manager on the day such Rights
are sold. The selling Record Date Shareholder will pay all brokerage
commissions incurred by the Dealer Manager. The Dealer Manager will also
attempt to sell all Rights which remain unclaimed as a result of Subscription
Certificates being returned by the postal authorities to the Subscription
Agent as undeliverable as of the fourth Business Day prior to the Expiration
Date. Such sales will be made net of commissions on behalf of the non-
claiming Record Date Shareholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such non-claiming Record Date
Shareholder until such proceeds are either claimed or escheat. There can be
no assurance that the Dealer Manager will be able to complete the sale of any
such Rights and neither the Fund nor the Subscription Agent nor the Dealer
Manager has guaranteed any minimum sales price for the Rights. All such
Rights will be sold at the market price, if any, on the NYSE.
Other Transfers. The Rights evidenced by a Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the instructions accompanying the Subscription Certificate. A
portion of the Rights evidenced by a single Subscription Certificate (but not
fractional Rights) may be transferred by delivering to the Subscription Agent
a
15
<PAGE>
Subscription Certificate properly endorsed for transfer, with instructions
to register such portion of the Rights evidenced thereby in the name of the
transferee and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights. In such event, a new Subscription
Certificate evidencing the balance of the Rights will be issued to the Record
Date Shareholder or, if the Record Date Shareholder so instructs, to an
additional transferee.
Record Date Shareholders wishing to transfer all or a portion of their
Rights should allow at least five Business Days prior to the Expiration Date
for (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any; and
(iii) the Rights evidenced by such new Subscription Certificate to be
exercised or sold by the recipients thereof. Neither the Fund nor the
Subscription Agent nor the Dealer Manager shall have any liability to a
transferee or transferor of Rights if Subscription Certificates are not
received in time for exercise or sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent and Dealer Manager
(which will be paid by the Fund), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by the Fund, the Subscription Agent or the Dealer Manager.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-
Subscription Privilege) may be effected through, the facilities of DTC (Rights
exercised through DTC are referred to as "DTC Exercised Rights"). The holder
of a DTC Exercised Right who was a Record Date Shareholder may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York City time, on the Expiration Date, a DTC Participant Over-
Subscription Form (see Appendix D), together with payment of the Subscription
Price for the number of Shares for which the Over-Subscription Privilege is to
be exercised. Copies of the DTC Participant Over-Subscription Form may be
obtained from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in
the envelope provided, or otherwise delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with payment for
the Shares as described below under "Payment of Shares." Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., New York City time, on the Expiration Date (unless payment is
effected by means of a notice of guaranteed delivery as described below under
"Payment of Shares") at the offices of the Subscription Agent at the address
set forth above. Rights may also be exercised through an Exercising Rights
Holder's broker, who may charge a fee in connection with such exercise.
Nominees who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares of Common Stock as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock
or Rights held through such a nominee should contact the nominee and request
the nominee to effect transactions in accordance with the beneficial owner's
instructions.
A Record Date Shareholder who is issued fewer than _____ Rights may
subscribe, at the Subscription Price, for one full Share. Fractional Shares
will not be issued, and Record Date Shareholders who, upon exercising their
Rights, are left with fewer than _____ Rights will not be able to exercise
such remaining Rights. However, the Dealer Manager will automatically either
purchase or attempt to sell the
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number of Rights which a Record Date Shareholder is unable to
exercise for this reason after the return of a completed and signed
Subscription certificate received by the Subscription Agent on or before 5:00
p.m., New York City time, on _____, 1995 and the Subscription Agent will remit
the proceeds of such sale net of commissions to such Record Date Shareholder.
EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE
Record Date Shareholders who fully exercise all Rights held by them on the
Expiration Date may participate in the Over-Subscription Privilege by
indicating on their Subscription Certificate the number of Shares they are
willing to acquire pursuant thereto. There is no limit on the number of Shares
for which Record Date Shareholders may seek to subscribe pursuant to the Over-
Subscription Privilege. If sufficient Shares remain after the Primary
Subscription, all over-subscriptions will be honored in full; otherwise the
number of Shares issued to each Record Date Shareholder participating in the
Over-Subscription Privilege will be allocated as described above under "Over-
Subscription Privilege."
Banks, brokers and other nominee holders of Rights will be required to
certify to the Fund, before any Over-Subscription Privilege may be exercised
as to any particular beneficial owner, as to (i) the aggregate number of
Rights exercised pursuant to the Primary Subscription, (ii) the number of
Shares subscribed for pursuant to the Over-Subscription Privilege by such
beneficial owner, and (iii) that such beneficial owner's Primary Subscription
was exercised in full.
PAYMENT FOR SHARES
Exercising Rights Holders who acquire Shares in the Primary Subscription
and Record Date Shareholders who acquire Shares pursuant to the Over-
Subscription Privilege may choose between the following methods of payment:
(1) An Exercising Rights Holder may send the Subscription Certificate
together with payment for the Shares acquired in the Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent.
Subscriptions will be accepted when payment, together with the executed
Subscription Certificate, is received by the Subscription Agent; such payment
and Subscription Certificates are to be received by the Subscription Agent no
later than 5:00 p.m., New York City time, on the Expiration Date. The
Subscription Agent will deposit all checks received by it for the purchase of
Shares into a segregated interest-bearing account of the Fund (the interest
from which will belong to the Fund) pending proration and distribution of
Shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE
TO THE BRAZIL FUND, INC. AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York City time, on the Expiration Date, the
Subscription Agent has received a notice of guaranteed delivery (see Appendix
C) by facsimile (telecopy) or otherwise from a bank, a trust company, or a
NYSE member guaranteeing delivery of (i) payment of the full Subscription
Price for the Shares subscribed for on Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege (for Record
Date Shareholders), and (ii) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a notice of guaranteed
delivery unless a properly completed and executed Subscription Certificate and
full payment for the Shares is received by the Subscription Agent by the close
of business on the third Business Day after the Expiration Date (the "Protect
Period").
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Within five Business Days following the Protect Period (the "Confirmation
Date"), the Subscription Agent will send to each Exercising Rights Holder (or,
if the shares are held by Cede or any other depository or nominee, to Cede or
such other depository or nominee), the share certificates representing the
Shares purchased pursuant to the Primary Subscription (and, if applicable, the
Over-Subscription Privilege), along with a letter explaining the allocation of
Shares pursuant to the Over-Subscription Privilege. Any excess payment to be
refunded by the Fund to a Record Date Shareholder who is not allocated the
full amount of Shares subscribed for pursuant to the Over-Subscription
Privilege will be mailed by the Subscription Agent. An Exercising Rights
Holder will have no right to rescind a purchase after the Subscription Agent
has received payment, either by means of a notice of guaranteed delivery or a
check.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised
and full payment for such Shares has been received and cleared. Certificates
representing Shares purchased pursuant to the Over-Subscription Privilege will
be delivered to Record Date Shareholders as soon as practicable after the
Expiration Date and all allocations have been effected. Shares purchased by
participants in the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan") will be held by the Plan Agent in uncertificated form. See "Dividends
and Distributions; Dividend Reimbursement and Cash Purchase Plan."
DISTRIBUTION ARRANGEMENTS
The Dealer Manager is Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013. Under the terms and subject to the conditions contained in a
Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager
provides marketing assistance and financial advisory services in connection
with the Offer and will solicit the exercise of Rights by Record Date
Shareholders. In addition, the Dealer Manager has agreed with the Fund to form
and manage the Selling Group Members to (a) solicit the exercise of Rights and
(b) sell to the public Shares purchased by the Dealer Manager from the Fund as
a result of the purchase and exercise of Rights by the Dealer Manager. The
Fund has agreed to pay the Dealer Manager a fee equal to [ ]% of the aggregate
Subscription Price for the Shares (which, if all Shares are subscribed for,
will result in a fee of $_____) for its marketing and financial advisory
services, including advice with respect to the advisability, timing, size and
Subscription Price of the Offer and the coordination of soliciting efforts
among soliciting dealers, the Subscription Agent and the Information Agent.
The Fund has also agreed to reimburse the Dealer Manager for its out-of-pocket
expenses in connection with the Offer up to an aggregate of $______.
Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to [ ]% of the Subscription Price to the Dealer Manager and each
Selling Group Member for each Share either issued upon the exercise of Rights
as a result of the Dealer Manager's or Selling Group Member's soliciting
efforts or purchased by the Dealer Manager for sale to the public, and to the
Dealer Manager for each Share issued upon the exercise of Rights but for which
no dealer designation was made on the related Subscription Certificate or for
which no other securities dealer is receiving soliciting fees due to the
maximum fee which is payable to a securities dealer who is not a Selling Group
Member.
The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a Soliciting Dealer Fee equal to [ ]% of the Subscription Price
to each securities dealer who is not a Selling Group Member but who is a
member of the National Association of Securities Dealers, Inc. and who has
executed and delivered a Soliciting Dealer Agreement and solicited the
exercise of such Rights, subject generally to a maximum fee based upon the
number of shares of Common Stock held by such dealer through The Depository
Trust Company on the Record Date.
In addition, the Fund will indemnify the Dealer Manager with respect to
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. The Dealer Manager Agreement also provides that in rendering the
services contemplated by the Dealer Manager Agreement, the Dealer Manager will
not be subject to any liability to the Fund except in instances involving the
Dealer
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Manager's gross negligence or willful misconduct, or for any act or
omission on the part of any broker-dealer (other than the Dealer Manager or
any of its affiliates) or any other person.
Under applicable law, during the Subscription Period, the Dealer Manager
may bid for and purchase Rights for certain purposes. Those purchases would
be subject to certain price and volume limitations when the Common Stock is
being stabilized by the Dealer Manager or when the Dealer Manager acquires the
Rights without an offsetting short position in the Common Stock. Those
limitations provide, among other things, that subject to certain exceptions,
not more than one bid to purchase Rights may be maintained in any one market
at the same price at the same time and that the initial bid for or purchase of
Rights may not be made at a price higher than the highest current independent
bid price on the NYSE. Any bid price may not be increased, subject to certain
exceptions, unless the Dealer Manager has not purchased any Rights for a full
Business Day or the independent bid price for those Rights on the NYSE has
exceeded the bid price for a full Business Day.
From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares of Common Stock at prices the Dealer Manager
sets from time to time, which prices may be higher or lower than the
Subscription Price. Prior to the Expiration Date, each of those prices when
set will not exceed the higher of the last sale price or current asked price
of the Common Stock on the NYSE, plus, in each case, an amount equal to an
exchange commission, and any offering price set on any calendar day will not
be increased more than once during that day. Any offering by the Dealer
Manager or any Selling Group Members may include Shares acquired or to be
acquired through the exercise of the Rights. As a result of those offerings,
the Dealer Manager and Selling Group Members may realize profits or losses
independent of its financial advisory fee and any Soliciting Fees it receives.
U.S. FEDERAL INCOME TAX CONSEQUENCES; BRAZILIAN TAX CONSEQUENCES
The U.S. Federal income tax consequences to Record Date Shareholders and
Rights Holders with respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income nor will record Date Shareholders or Rights Holders
realize taxable income as a result of the exercise of the Rights.
2. The basis of a Right received by a Record Date Shareholder who
exercises or sells the Right will be zero if the fair market value of the
Right immediately after issuance is less than 15% of the fair market value of
the Common Stock with regard to which the Right is issued (unless the Record
Date Shareholder elects to allocate the basis of the Common Stock between the
Right and the Common Stock based upon their respective fair market values
immediately after the Right is issued). If the fair market value immediately
after issuance of a Right received by a Record Date Shareholder who exercises
or sells the Right is 15% or more of the fair market value of the Common Stock
with regard to which it is issued, the basis of the Right will be a portion of
the basis of the Common Stock, based upon the respective fair market values of
the Right and the Common Stock immediately after the Right is issued. In the
case of a Record Date Shareholder who receives a Right and who allows the
Right to expire, the basis of the Right will be zero. In the case of a Rights
Holder who purchases a Right in the market, the basis of the Right will be the
purchase price for the Right.
3. The holding period of a Right received by a Record Date
Shareholder includes the holding period of the Common Stock.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending on
how long the Right has been held, in accordance with paragraph 3 above. If a
Right is allowed to expire, there will be no loss realized unless the Right
was acquired by purchase, in which case there will be a loss equal to the
basis of the Right.
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<PAGE>
5. If a Right is exercised by the Record Date Shareholder or Rights
Holder, the basis of the Common Stock received will include the basis of the
Right (see paragraph 2 above) and the amount paid upon exercise of the Right.
6. If a Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
7. Gain recognized by a non-U.S. shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Common
Stock. See "Taxation -- United States Federal Income Taxes -- Non-U.S.
Shareholders" in the SAI.
Proceeds from the sale of a Right may be subject to withholding of U.S.
taxes at the rate of 31% unless the seller's certified U.S. taxpayer
identification number (or certificate regarding foreign status) is on file
with the Subscription Agent and the seller is not otherwise subject to U.S.
backup withholding. The 31% withholding tax is not an additional tax. Any
amount withheld may be credited against the seller's U.S. Federal income tax
liability.
The foregoing is only a summary of the applicable U.S. Federal income tax
law and does not include any state, local or non-U.S. tax consequences with
respect to the Offer. Investors should consult their tax advisers regarding
specific questions as to U.S. Federal, state, local and non-U.S. taxes.
Under Brazilian law:
1. The issuance of the Rights by the Fund is not a taxable event
and will not result in the imposition of any Brazilian tax on either the Fund
or its shareholders.
2. The exercise of the Rights by the Record Date Shareholders or
Rights Holders and the purchase of additional shares of the Fund's Common
Stock as a result thereof are not taxable events and will not result in the
imposition of any Brazilian tax on either the Fund or its shareholders.
3. Any gain on the sale of a Right will not result in the
imposition of any Brazilian tax on a shareholder not domiciled in Brazil.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the Commission's registration form, undertaken
to suspend the Offer until it amends this Prospectus if, subsequent to the
effective date of the Fund's Registration Statement, the Fund's net asset
value declines more than 10% from its net asset value as of that date.
USE OF PROCEEDS
The net proceeds of the Offer, assuming that all of the Rights are
exercised, are estimated at approximately $_______ after deducting expenses
payable by the Fund of approximately $______. There can be no assurance that
all of the Rights will be exercised. The net proceeds of the Offer will be
used by the Fund for investment in accordance with its investment objective
and policies. See "Investment Objective and Policies." The Fund expects that
it will invest the proceeds in a manner designed to avoid disruption of
trading on the Stock Exchanges by investing in Brazilian securities over such
period of time and in such amounts as are intended to minimize market impact.
The Manager currently expects that investment of the proceeds should be
substantially completed within six months of the closing of the Offer.
Pending investment, the proceeds will be temporarily invested in short-term
debt securities of the type described under "Investment Objective and
Policies."
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Brazilian issuers. This objective may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. As
used in this Prospectus, "a majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares.
In pursuing its investment objective, the Fund is subject to restrictions
with respect to its portfolio of investments held in Brazil (the "Portfolio"),
which restrictions at present are imposed by regulations (the "Regulations")
promulgated by the Brazilian Monetary Council (the "Monetary Council"). See
"Investment Restrictions" for a summary of all restrictions in the Regulations
relating to the composition of the Portfolio. In addition, the Fund is subject
to restrictions imposed by the U.S. Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. See
"Taxation -- United States Income Taxes" in the SAI.
It is the policy of the Fund normally to invest at least 70% of its total
assets in common and preferred stocks of companies registered with the
Brazilian Securities Commission and listed on the Stock Exchanges or traded in
over-the-counter markets. The Fund may only invest in the over-the-counter
market organized by entities accredited by the Brazilian Securities
Commission. As no entities have yet been so accredited, the Fund is not
currently permitted to invest in Brazil's over-the-counter market. It is
expected that the balance of the Fund's assets normally will be invested in
short-term investments. Pending investment in Brazilian securities, the Fund
will invest the net proceeds of the Offer in Dollar-denominated money market
instruments of United States issuers, such as: short-term (less than 12
months to maturity) obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities; finance company and corporate commercial
paper, in each case rated Prime 1 by Moody's Investors Service, Inc. or A or
better by Standard & Poor's or, if unrated, of comparable quality as
determined by the Manager; short-term obligations (including certificates of
deposit and banker's acceptances) of U.S. banks, including foreign branches of
such banks, that are members of the Federal Reserve System and savings
associations that are members of the Federal Home Loan Bank System; and
related repurchase agreements. As current income is not an investment
objective of the Fund, the income earned on such debt securities will be
incidental to achieving the Fund's investment objective of long-term capital
appreciation. The Manager may invest in short-term debt securities for
reserves for anticipated expenditures and for temporary defensive purposes.
The Fund invests its assets in a broad spectrum of Brazilian industries.
See "The Brazilian Securities Market -- The Secondary Market." In selecting
industries and companies for investment, the Manager considers overall growth
prospects, competitive position in domestic and export markets, technology,
research and development, productivity, labor costs, raw material costs and
sources, profit margins, return on investment, capital resources, government
regulation, management, price of the securities and other factors. See
"Foreign Investment and Exchange Controls in Brazil" for a description of
restrictions on foreign investments in some sectors of Brazilian economic
activity. The Fund invests principally in securities of established
companies, although investments may be made in securities of new or little-
known companies.
For temporary defensive purposes, the Fund may depart from its investment
policy. During periods in which changes in Brazilian market, economic or
political conditions warrant, the Fund may reduce its position in equity
securities and increase its position in debt securities or in short-term
indebtedness, or hold cash. The Regulations require, however, that
investments in Brazilian common and preferred stocks, as a percentage of the
total value of the investments in the Portfolio, be at least 35% on any day
and should be at least 70% on average, as tested over a 720-day period. These
requirements may limit the Fund's ability to make defensive investments during
a period in which the Fund's Manager believes that such investments are
warranted. The Fund has requested confirmation from the Brazilian
21
<PAGE>
Securities Commission that the Fund will have one year from the date of
completion of the Offer to adapt its portfolio to meet these requirements. See
"Investment Restrictions" in the SAI.
Since the Fund is a non-diversified company, there is no investment
restriction on the percentage of the Fund's total assets that may be invested
at any time in the securities of any issuer other than the diversification
requirements under the Fund's investment restrictions, which prevent the Fund
from purchasing a security that would result in more than 25% of the Fund's
assets being invested in a single industry or more than 10% in a single
issuer, the diversification requirements applicable to the Portfolio under the
Regulations, and the diversification requirements applicable to regulated
investment companies under the Code. See "Investment Restrictions" and
"Taxation -- United States Federal Income Taxes." While the relatively
greater concentration in securities of fewer issuers permitted to the Fund
reduces diversification of risk and could result in greater fluctuation in the
prices of the Fund's portfolio securities, it also reflects the Brazilian
securities market in that securities of relatively few companies account for a
greater share of the capitalization of the market than is the case in the
United States. See "The Brazilian Securities Market -- The Secondary
Markets."
The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade in securities for short-term gain.
The annual portfolio turnover rate for the years ended December 31, 1993 and
1994 was 4.67% and 5.76%, respectively, and the annualized portfolio turnover
rate for the nine-month period ended September 30, 1995 was ____%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Fund's
portfolio securities. For purposes of this calculation, portfolio securities
exclude all securities having a maturity when purchased of one year or less.
CERTAIN INVESTMENT PRACTICES
The Fund's investment policies permit it to enter into futures and forward
contracts for foreign currency, futures contracts on stock indices, options on
stock indices, futures contracts on gold and other precious metals and certain
repurchase agreements and to write call options on stocks. Under current U.S.
law, the Fund may not enter into futures contracts on Brazilian stock indices,
and due to recent changes to the Regulations introduced by the Monetary
Council, the Fund is currently prevented from trading in derivatives on the
options, futures and forward markets, even for the purpose of hedging
positions taken by the Fund in the cash market, and acquiring fixed-income
securities (with the exception of (i) Agrarian Debt Notes (notes issued by the
National Treasury in order to finance the Government's expropriation of areas
subject to farm reformt, (ii) Brazilian Development Fund ("BDF") obligations
(bonds issued by the BDF to finance investments in Brazil to foster domestic
development) ("BDF Bonds"), and (iii) debentures of Siderurgia Brasileira
S.A., a joint-stock company in which the Government is the majority
shareholder and which engages in activities related to the steel production
sector).
Under Resolution No. 1289 of March 20, 1987 ("Resolution 1289"), which
governs investment companies, funds and portfolios (such as the Fund), the
Fund was authorized to carry out transactions on the futures markets on
foreign exchange rates, share indices and options thereof. Moreover, the
Regulations also authorized the Fund to enter into repurchase agreements with
respect to Government securities. However, on June 30, 1992, the Monetary
Council issued Resolution No. 1935 ("Resolution 1935"), restricting
transactions in derivatives carried out by investment companies, funds and
portfolios under Resolution 1289 to the exclusive purpose of performing
hedging transactions for the cash positions taken by these investment
companies, funds and portfolios up to the limit of such positions.
On December 17, 1993, the Monetary Council issued Resolution No. 2034
("Resolution 2034") which prevented investment companies, funds and portfolios
under Resolution 1289 from investing their funds in: (i) fixed-income
securities, (ii) transactions on derivative markets other than for the hedging
of
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spot positions, up to the amount thereof, and (iii) derivative transactions
providing for fixed income streams.
On August 10, 1995, the Monetary Council, by means of Resolution No. 2.188,
revoked Resolution 1935, and amended Resolution 2034 so that investment
companies, funds and portfolios (such as the Fund) regulated by Resolution
1289 cannot enter into transactions in the derivatives market, purchase fixed
income securities (except for those referred to in clauses (i), (ii), (iii)
and (iv) of the next paragraph), nor enter into transactions providing for
fixed income streams.
Accordingly, the Fund's assets may be invested in securities issued by
publicly-held corporations (with the exception of fixed-income securities) and
(i) Agrarian Debt Notes, (ii) BDF Bonds, (iii) debentures issued by Siderurgia
Brasileira S.A., and (iv) other forms of investment expressly and jointly
authorized by the Brazilian Securities Commission and the Central Bank.
The abovementioned restrictions were imposed in order to avoid the inflow
of foreign capital in Brazil for the purpose of trading on the derivatives
markets and acquiring fixed income securities, due to Brazilian high interest
rates, and were adopted as a measure to stabilize the economy.
Certain provisions of the Code applicable to investment companies may limit
the extent to which the Fund may enter into, and derive income from, forward
and futures contracts (including futures contracts on gold and other
commodities) and may also affect the character and timing of income, gain or
loss recognized by the Fund from such transactions. See "Taxation -- United
States Federal Income Taxes" in the SAI.
Described below are certain transactions that are not currently
permitted under the changes to the Regulations described above, but that the
Fund might engage in if such restrictions were to be lifted in the future.
FUTURES CONTRACTS
In Brazil, futures contracts are standardized contracts for the future
delivery of a commodity, security or index at a future date for an agreed
price. As previously noted, under the Regulations, the Fund is permitted to
enter into futures contracts only for foreign currency and for stock indices.
Parties to futures contracts must make a good faith deposit, referred to as
initial margin, that is a percentage of the value of the contract. Subsequent
payments, called "variation margin," will be made on a daily basis as the
price of the underlying commodity or index fluctuates, making the long and
short positions in the futures contracts more or less valuable.
Futures contract positions are typically liquidated by entering into an
offsetting transaction on an exchange. If an offsetting contract is not
entered into prior to the maturity of a contract, the parties must take or
make delivery of the underlying commodity against payment of the agreed price,
except in the case of certain futures contracts, including foreign currency
and stock index contracts, which generally are settled by payments of cash.
Commodity futures exchanges generally impose daily limits on permitted
fluctuations in the price of futures contracts traded thereon. Consequently,
in a period of widely fluctuating prices, it may be difficult for the Fund to
liquidate a position. The Fund will only enter into a futures contract if in
the Manager's view a liquid market exists for such contracts. There can,
however, be no assurance that the Fund will be able to close out a contract in
a particular case in a timely manner or at all, in which case the Fund may
suffer a loss.
The Fund may not enter into futures contracts if the aggregate amount of
initial margin deposits on the Fund's futures positions would exceed 5% of the
value of the Fund's total assets.
While the Fund may enter into futures contracts for hedging purposes,
changes in prices may result in a poorer overall performance for the Fund than
if it had not engaged in any such transaction. In the case of stock index
futures contracts, there may be an imperfect correlation between the Fund's
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portfolio holdings of securities denominated in Reais and futures contracts
entered into by the Fund. This imperfect correlation may prevent the Fund
from achieving the intended hedge or expose the Fund to risk of losses.
The Fund does not intend to enter into futures contracts to protect the
value of its portfolio securities on a regular basis. The Fund also will not
enter into such futures contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate the Fund to deliver an
amount of currency in excess of the value of the Fund's portfolio securities
or other assets denominated in that currency. Further, the Fund generally
will not enter into a futures contract with a term of greater than one year.
FUTURES CONTRACTS ON DOLLARS
The Fund may enter into futures contracts for Dollars for hedging purposes.
For example, when the Fund enters into a contract for the purchase or sale of
a security denominated in Reais, or when the Fund anticipates the receipt in
Reais of dividends or interest payments on such a security that it holds, the
Fund may desire to "lock in" the Dollar price of the security or the Dollar
equivalent of such dividend or interest payment, as the case may be. In
addition, when the Manager believes that the Real may suffer a substantial
decline against the Dollar, it may enter into a futures contract to sell, for
a fixed amount of Dollars, the amount of Reais approximating the value of some
or all of the Fund's portfolio securities denominated in Reais.
STOCK INDEX FUTURES CONTRACTS
The Fund may seek to hedge all or a portion of its portfolio investments
through the use of stock index futures contracts. A stock index futures
contract is an agreement to take or make delivery of the securities underlying
the index or of an amount of cash equal to the difference between the value of
the index at the beginning and at the end of the contract period. Settlement
of a stock index futures contract is normally by payment of cash. At present,
the Fund is prohibited by the U.S. Commodity Exchange Act from purchasing or
selling Brazilian stock index futures contracts. The Fund reserves the right
to purchase and sell such contracts should such activities become lawful in
the future, as a result of an application by the Fund or otherwise.
If permitted to trade in stock index futures, the Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of equity securities in its portfolio that
might otherwise result. When the Fund is not fully invested in stocks and
anticipates a significant market advance, it may purchase stock index futures
to gain rapid market exposure that may partly or entirely offset increases in
the cost of the stocks that it intends to purchase. In a substantial majority
of these transactions, the Fund will purchase such securities upon termination
of the futures position but, under unusual market conditions, a futures
position may be terminated without the corresponding purchase of
stocks. No assurance can be given that the Manager will be able to make
successful use of stock index futures, if permitted to trade in them.
FORWARD CONTRACTS ON CURRENCIES
In order to hedge against exchange rate risks. the Fund may enter into
forward contracts to purchase or sell Dollars. Forward currency contracts
involve an obligation to purchase or sell Dollars for Reais, or Reais for
Dollars, for an agreed price at a specified future date. These contracts are
made in an over-the-counter market conducted directly between currency traders
(usually large commercial banks and other institutions). At present, there is
only a small forward market for foreign currencies in Brazil, and such market
is limited to Dollars.
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REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the seller of a security
agrees at the time of sale to repurchase the security at an agreed-upon price
and date. Such resale price reflects an agreed-upon interest rate effective
for the period the security is held by the purchaser and is unrelated to the
interest rate on the in strument. The staff of the Commission views
repurchase agreements as loans collateralized by the underlying security.
When the Fund enters into a repurchase agreement, the seller will be required
to maintain the value of the securities subject to the repurchase agreement,
marked to market daily, at not less than their repurchase price. Repurchase
agreements may involve risks in the event of insolvency or other default by
the seller, including possible delays and expenses in liquidating the
underlying security, decline in its value and loss of interest. The Manager
intends to monitor the seller's compliance with its obligation to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price, and also to review the creditworthiness of the Fund's
counterparties in such transactions. At present, the Fund may enter into re
purchase agreements in Brazil only with respect to Government securities.
For information regarding certain investment restrictions applicable to the
Fund, see "Investment Restrictions" in the SAI.
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL
FOREIGN INVESTMENT CONTROL
While current Brazilian law provides that foreign capital invested in
Brazil will receive the same legal treatment as domestic capital, there are
nonetheless certain limitations and controls that generally affect foreign
investors in Brazil. All foreign investments must be registered with the
Central Bank, which issues a Certificate of Registration of the foreign
currency value of such investment. Without such registration, no remittances
of dividends or profits may be made abroad, nor may any part of the original
investment be repatriated.
Upon the granting of the Fund's authorization by the Brazilian Securities
Commission and the initial entry into Brazil of the Fund's capital, the
Central Bank issued a Certificate of Registration. The Central Bank will be
required to amend such Certificate upon each additional entry (including the
entry of the proceeds of this offering) or any repatriation of the Fund's
capital.
Under current Brazilian law, the Fund is permitted to repatriate income
received from dividends and interest earned on, and net capital gains from,
the Portfolio. Under the Fund's authorization from the Brazilian Securities
Commission, the Fund may also repatriate capital, but only: to enable the
Fund to distribute all of its income and capital gains (as computed for U.S.
Federal income tax purposes); to pay expenses incurred outside of Brazil; to
repay borrowings made for temporary or emergency purposes; and to enable the
Fund to distribute its assets in connection with the termination of the Fund,
provided that the Fund's dissolution has been approved by holders of at least
two-thirds of the fund's shares.
In certain sectors of Brazilian economic activity foreign (and, in some
cases, private domestic) capital participation is prohibited or restricted.
There are currently very few publicly held companies in such sectors and, in
most cases, only foreign investment in preferred shares of such companies is
permitted. Accordingly, under current law and given the current universe of
listed companies, these restrictions result in the Fund's being prohibited
from buying voting common (but not preferred) shares of Petrobras (the
Government oil monopoly) and the Banco do Brasil. The ownership by non-
Brazilians of voting shares, or securities convertible into voting shares, of
certain companies may be restricted by such companies' by-laws.
Under current Brazilian law, whenever there occurs a serious imbalance in
Brazil's balance of payments or serious reasons to foresee the imminence of
such an imbalance, the Monetary Council may, for a limited period, (i)
-
determine that all or a portion of foreign currency exchange transactions be
made
25
<PAGE>
only through the Central Bank; (ii) prohibit capital repatriation
--
remittances; and (iii) limit profit remittances abroad to 10% per annum of
---
capital and reinvested capital. This power has been exercised in a limited
manner only twice -- for approximately eight months beginning in mid-1983 and
for approximately eleven months from June 1989 to May 1990. During those
periods, remittances of capital and profits could only be made subject to the
authorization of the Central Bank and delays not exceeding eight months were
experienced by foreign investors, although interest was paid for the periods
of the delays. Such restrictions, however, have not affected the Fund, which
was expressly exempted by Comunicado DECAM n. 1. 169, issued by the Central
Bank on July 11, 1989. Such relief was expressly limited to the restrictions
imposed in 1989. If similar restrictions are imposed in the future, there can
be no assurance that the Fund would be able to obtain similar relief from the
Central Bank. There can be no assurance that restrictions could not be
imposed in the future, nor as to the duration of such restrictions if imposed.
The Fund's Brazilian counsel has advised that, while the Brazilian statute
does not define the term "limited period," the term denotes a period of time
not in excess of the period during which conditions exist that warrant
restrictions on remittances, namely, a serious imbalance in Brazil's balance
of payments or serious reasons to foresee such an imbalance. Under present
economic and political conditions in Brazil, the Manager does not believe that
the restrictions referred to above will have a significant impact on the
Fund's ability to operate, although there can be no assurance that
restrictions could not be imposed in the future, nor as to the duration of
such restrictions if imposed.
If for any reason the Fund was unable to distribute substantially all of
its net investment income (including net short-term capital gains) and net
long-term capital gains (as defined for U.S. tax purposes) within applicable
time periods, the Fund could be subject to U.S. Federal income and excise
taxes which would not otherwise be incurred and might cease to qualify for the
favorable tax treatment afforded to regulated investment companies under the
Code, in which case it would become subject to U.S. Federal income tax on all
of its income and gains. See "Taxation -- United States Income Taxes" in the
SAI.
BRAZILIAN EXCHANGE MARKETS
For some time Brazil only had the official market, where exchange rates
were administered by the Central Bank. Initially, rates were set at a fixed
level for rather long periods, often followed by large devaluations, which
would cause substantial distortions in the economy.
This system was followed by mini-devaluations, where the exchange rate
varied on a daily basis, somewhat pegged to inflation. While this was a better
system, it did not fully prevent distortions as many times the accumulated
daily devaluations were lower than real inflation for a given period, and
maxi-devaluations would follow.
In 1988 the tourism exchange market was created, where rates are freely
negotiated. Use of this market was initially restricted to a fairly small
number of transactions.
In 1990 the former official market was allowed to trade at freely floating
rates as well, thus becoming today's free rate exchange market. This market is
usually referred to as the commercial market.
Consequently, Brazil currently has two officially approved and supervised
foreign exchange markets, both of them trading at freely floating rates:
(a) the commercial market, valid for transactions previously approved by
the Central Bank, primarily involving foreign trade, foreign currency
financing and foreign investment; and
(b) the floating rate market, valid for tourism and for a variety of other
transactions that can be conducted on a general basis, without prior Central
Bank approval for specific transactions, such as purchases of software,
payment of tuition and payment of medical expenses, among others, on a
continually expanding list. See Annex A, "The Federative Republic of Brazil -
- Foreign Exchange."
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<PAGE>
The Fund is unable to predict whether further economic reforms or
modifications to the existing plan by the Brazilian government may adversely
affect the liquidity of the Brazilian stock market in the future.
RISK FACTORS AND SPECIAL CONSIDERATIONS
INVESTMENT AND REPATRIATION CONTROLS
Direct portfolio investment by foreign investment companies in the
Brazilian securities market requires authorization by, and is subject to the
control of, the Brazilian Securities Commission. In addition, conversion of
Reais into foreign exchange, transfer of funds from Brazil to foreign
countries and repatriation of foreign capital invested in Brazil are
controlled by and subject to reporting and prior approval of the Central Bank
pursuant to foreign exchange control laws and regulations and may be subject
to substantial delays which could affect the ability of the Fund to operate.
In January of 1990, it was necessary for the Fund to borrow funds to make
certain dividend payments because of such delays. The Fund is unable to
predict whether such delays will occur in the future, and the effect of such
delays, if any, on the Fund.
The Fund has obtained authorization from the Brazilian Securities
Commission to invest in Brazilian securities, subject to certain restrictions
summarized in this Prospectus. Under current Brazilian law, the Fund is
permitted to repatriate income received from dividends and interest earned on,
and net realized capital gains from, its investments in Brazilian securities.
Under its authorization, the Fund may also repatriate capital, but only to the
extent necessary to distribute income and capital gains (as computed for U.S.
Federal income tax purposes), to pay expenses incurred outside of Brazil, to
repay borrowings made for temporary or emergency purposes, and in connection
with the termination of the Fund. Under current Brazilian law, whenever there
occurs a serious imbalance in Brazil's balance of payments or serious reasons
to foresee the imminence of such an imbalance, the Monetary Council may, for a
limited period, impose restrictions on foreign capital remittances abroad.
While the limited period for which such restrictions may be imposed is not
defined in the Brazilian statute, the Fund's Brazilian counsel has advised
that the limited period refers to a period of time not in excess of the period
during which conditions exist that warrant restrictions on remittances,
namely, a serious imbalance in Brazil's balance of payments or serious reasons
to foresee such an imbalance. See "Foreign Investment and Exchange Controls
in Brazil."
Under present economic and political conditions in Brazil, the Manager does
not believe that the delays, controls and restrictions referred to above will
have a significant impact on the Fund's ability to operate. As a result of
the imposition of restrictions in 1983, delays not exceeding eight months were
experienced by foreign investors in remitting capital and profits. Similar
restrictions were again imposed on June 30, 1989, and lasted for a period of
eleven months. Such restrictions, however, did not affect the Fund, which was
expressly exempted by Comunicado DECAM n. 1.169, issued by the Central Bank on
July 11, 1989. Such relief was expressly limited to the restrictions imposed
in 1989. If similar restrictions were to be imposed in the future, there can
be no assurance that the Fund would be able to obtain similar relief from the
Central Bank. If the Fund were unable to distribute substantially all of its
net investment income (including short-term capital gains) within applicable
time periods, the Fund could be subject to U.S. Federal income and excise
taxes which would not otherwise be incurred and might cease to qualify for the
favorable tax treatment afforded to regulated investment companies for U.S.
Federal income tax purposes, in which case it would become subject to U.S.
Federal income tax on all of its income and gains. See " Taxation -- United
States Income Taxes" in the SAI.
CURRENCY FLUCTUATIONS
The Fund invests in securities denominated in Reais and most of the Fund's
income is received or realized in Reais, although the Fund is required to
compute and distribute its income in Dollars. Accordingly,
changes in the value of the Real against the Dollar will result in
corresponding changes in
27
<PAGE>
the Dollar value of the Fund's assets denominated in Reais and will change the
Dollar value of income and gains derived in Reais. Historically, over long
periods of time the rate of devaluation of Brazilian currencies relative to
the Dollar has resulted in a rate of appreciation of the Dollar relative to
such currencies that has correlated roughly with the rate of inflation, as
calculated by the General Price Index ("GPI"), in Brazil. [Give aggregate
appreciation date for the last five years.] See "--Inflation" below and Annex
A, "The Federative Republic of Brazil -- The Economy -- Prices," "-- Balance
of Payments and Foreign Trade" and "-- Foreign Exchange." Under the Plano
Real, the Real has experienced greater stability against foreign currencies
than have previous Brazilian currencies, and in the twelve months following
its introduction the Real appreciated against the Dollar 8.6% point-to-point.
[Give aggregate appreciation taking into account the effects of inflation.]
However, appreciation of the Real can have negative consequences for Brazil's
trade balance and can create pressures to devalue the Real, which would tend
to increase exports, but also to increase inflation. In March 1995 the Central
Bank formalized a floating band exchange rate in the commercial exchange rate
market. The band that was established and subsequent changes of the band have
had the effect of devaluing the Real. See Annex A, "The Federative Republic of
Brazil -- Foreign Exchange."
In view of these factors, it is difficult to predict what effect currency
fluctuations may have on the results of operations of the Fund in the future.
Furthermore, there can be no assurance that the Brazilian monetary authorities
will not change their policies with respect to the exchange rate of the Real
or that the Government will not take action to replace the Real as Brazil's
currency.
In addition to changes in value due to currency fluctuations, the Fund has
in the past incurred currency conversion costs in connection with investments
in Brazil and distributions of income from such investments.
MARKET VOLATILITY
The Brazilian securities market is one of the largest (on the basis of
market capitalization and annual trading volume) of the emerging securities
markets; however, it is substantially smaller than the United States
securities market. The aggregate market value as of _____, 1995 of the equity
securities listed on the Stock Exchanges was approximately [R$__] ([US$__]
billion). The public float of such securities was substantially less, because
in many companies a substantial percentage of the shares is owned by the
Government or by private controlling stockholders. The average daily trading
volume of cash transactions on all Stock Exchanges for the year ended December
31, 1994 was [R$__] ([US$__] million). In 1995, approximately [__%] of the
cash market trading value on the Stock Exchanges reflected trading in the
securities of [____] of the most actively traded companies. These are among
the factors that have caused the Brazilian securities market to have
substantially greater price volatility and lesser liquidity than is usual in
the United States. Because of this lesser liquidity, it may be more difficult
for the Fund to purchase and sell portfolio positions than would be the case
in the United States.
Historically, the Government's attempts to deal with inflation since 1986
by implementing various plans have failed to provide a long-term solution for
controlling Brazil's high rate of inflation. The plans and subsequent
measures to counteract each plan's failure have contributed to greater than
normal price and volume volatility of the Brazilian securities markets over
the past five years. In addition, the Brazilian securities markets have in
the past been affected by the trading of significant blocks of securities by
large investors and by shifts in investor preferences from equity securities
to alternative investments in response to Brazilian government policy changes.
See "The Brazilian Securities Market -- The Brazilian Stock Exchanges."
Movements of stock prices in a highly inflationary country are best
interpreted in inflation-adjusted terms. On an inflation-adjusted basis, the
Sao Paulo Index of stock prices [provide examples of fluctuations during the
last five years]. See "The Brazilian Securities Market -- Background and
Development."
28
<PAGE>
The Fund's net assets after the Offer will represent approximately [___%]
of the aggregate market value of equity securities listed on the Stock
Exchanges at _____, 1995. The Fund's initial investment of the net proceeds
of the Offer, and the anticipation of such investment, could have an adverse
impact on prices paid by the Fund for its portfolio securities, and the
relatively small trading volume may affect the rate at which the Fund can
invest in Brazilian securities. In addition to investments by the Fund, it is
possible that there will be additional substantial foreign investment in
Brazil from other sources as a result of the Government's recent
liberalization of restrictions on foreign investment and economic policy. The
Fund expects to invest the proceeds in Brazilian securities over a period of
time and taking into account the likely impact of such investments. The length
of time over which the Brazilian Securities Commission has allowed the Fund to
invest the proceeds of this offering (one year from the date of this
Prospectus) is also designed to avoid such adverse impact. See "The Brazilian
Securities Market -- Foreign Investment and the Fund."
DEBT RECORD
During the 1980s and into the 1990s, the Republic defaulted on and
rescheduled loans from commercial banks and official creditors. From time to
time, Brazil is in arrears (currently approximately $300 million) with respect
to Paris Club obligations, primarily guarantees of import financings for state
companies in the electricity sector. During the period from 1982 until the
implementation of a Brady-style external debt restructuring in April 1994,
Brazil failed to make payments on certain of its external indebtedness from
commercial banks as originally scheduled, and in February 1987 declared a
moratorium on principal and interest payments on external indebtedness to
commercial banks. In April 1994, Brazil concluded Brady Plan-type debt
restructuring agreements with its private sector creditors that should
facilitate Brazil's ability to comply with such obligations in the future.
However, no assurances can be made in this respect. See Annex A, "The
Federative Republic of Brazil -- Public Debt." In addition, Brazilian banks
have come under pressure from declining earnings related to reduced inflation,
and from high levels of non-performing loans. See Annex A, "The Federative
Republic of Brazil--The Financial System."
CURRENT ACCOUNT
Since late 1994, Brazil has experienced a current account deficit. The
appreciation of the Real from July through December 1994, the liberalization
of imports and the recovery of domestic demand (due to lower inflation) all
contributed to this current account deficit. Meanwhile, the liquidity crisis
experienced by Mexico beginning in December 1994 reduced the level of inflows
of foreign capital to finance this deficit. Declines in foreign investment,
the continued monthly trade deficits accumulating U.S. $3.5 billion in the
period from January through May 31, 1995, and concerns that the Real might be
overvalued all have contributed to a decrease of international reserves from
U.S. $38.8 billion at December 31, 1994 to U.S. $33.7 billion at May 31, 1995
[more recent data?] the Government's realignment of the foreign exchange band
and a devaluation of the Real from 0.846/Dollar on December 31, 1994 to
0.95/Dollar on August 29, 1995. See Annex A, "The Federative Republic of
Brazil -- Balance of Payments and Foreign Trade" and "-- Foreign Exchange."
INFLATION
The 1995 changes in the Real-Dollar exchange rate, strong GDP growth, high
levels of consumption and price increases in non-tradeable goods have all
generated inflationary pressures. Monthly inflation rates in 1995 have
fluctuated between 0.4% and 2.62% (4.91% to 36.39% on an annual basis).
Brazil experienced 2.62% inflation for the month of June 1995 (equivalent to
36.39% per annum), the highest level since August 1994. Although the
Government has responded to the surge in consumer demand and the increasing
trade deficit with a variety of measures to restrict credit, to provide export
incentives and to increase temporarily import tariffs on selected goods,
average monthly inflation for the period from January through June 1995 of
1.61% (equivalent to 21.13% per annum) is still above the inflation level in
most European countries. Since the introduction of the Plano Real, the
inflation rate has been held down in part by the Government's freeze of
certain prices, such as telephone tariffs,
29
<PAGE>
electricity rates and the price of certain petroleum products. See Annex A,
"The Federative Republic of Brazil -- The Economy -- The Plano Real" and "--
Prices." Such prices are expected to rise, which may lead to demands for
higher wages. Moreover, the credit constraint needed to assist in controlling
inflation may depress economic growth. There can be no assurance that the rate
of inflation in Brazil will not significantly change in the future.
GOVERNMENTAL PARTICIPATION IN THE ECONOMY AND
CURRENCY AND MONETARY CONTROLS
In the recent past the Government has exercised substantial influence over
many aspects of the private sector by legislation and regulation, including
regulation of prices and wages. See Annex A, "The Federative Republic of
Brazil -- The Economy -- The Plano Real" and "-- Prices." In addition, the
Government owns or controls many Brazilian companies, and owns a majority of
the voting stock of [ ] of the 10 largest (in terms of market
capitalization as of December 31, 1994) publicly held Brazilian companies.
Brazil's 1988 constitution mandates a Government monopoly of certain key
sectors, including the petroleum, telecommunications and gas-distribution.
Since 1991, the Brazilian Government has undertaken a privatization program in
which over 30 state enterprises have been sold for an aggregate amount of
approximately $8.6 billion. In August 1995, the Congress approved
constitutional amendments permitting privatization of the State's gas-
distribution companies and the telecommunications sector. An amendment to
loosen the Government's monopoly in the petroleum sector is currently pending.
There can be no assurance that additional privatization will occur at a
similar rate or at all. See Annex A, "The Federative Republic of Brazil -- The
Brazilian Economy --State-Controlled Enterprises."
ECONOMIC STABILIZATION ATTEMPTS
Prior to the introduction of the Real as Brazil's official currency in July
1994 pursuant to the Plano Real, Brazil's economic performance had been
characterized by macroeconomic instability, including extremely high rates of
inflation and significant and sudden currency devaluations. Pre-Plano Real
stabilization efforts, which included wage and price controls and unilateral
modifications of the terms of financial contracts, failed to contain inflation
for any extended period. While the current Plano Real does not use such
interventionist means, there can be no guarantee that future governments will
not resort to increased intervention to combat future inflation.
SUSTAINABILITY OF PLANO REAL
The Plano Real has succeeded to date in sharply reducing inflation, which
declined from a monthly rate of 46.6% (equivalent to 9738% per annum) in June
1994 to 2.62% (equivalent to 36.39% per annum) in June 1995. The continued
success of the Plano Real, however, depends on the ability of the Government
to maintain fiscal restraint and a tight monetary policy in the face of both
domestic and international economic pressures as well as on the ability of the
Government to implement longer-term structural reforms, such as reform of the
tax and social security systems, transfer of certain federal spending
responsibilities to State governments and privatization of major enterprises,
some of which reforms require constitutional amendments to be implemented.
Amendments to the Constitution require a three-fifths vote of each House of
Congress in two separate rounds. President Fernando Henrique Cardoso's party,
which holds the third largest block of seats in Congress, does not alone have
sufficient votes to ensure passage of such amendments. Although the Congress
and the Senate have voted in favor of several important amendments, the
ability of the Cardoso Government to continue to obtain favorable votes
required to effect needed constitutional reforms depends upon a coalition
among a variety of political parties with varying degrees of stated commitment
to these measures.
POLITICAL AND OTHER CONSIDERATIONS
Brazilian politics has been marked by high levels of uncertainty since the
country returned to democratic rule in 1985 after 20 years of military
government. Corruption scandals, the death of a
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<PAGE>
president-elect and the impeachment of another, as well as a political party
system marked by the fragmentation of political power among many parties, have
restricted the ability of the Government institutions to develop coherent and
consistent policies designed to confront the problems facing the Brazilian
economy. Furthermore, the Government's ability to control its budget is
limited by constitutionally required reallocations of public resources from
the federal Government to the Brazilian States. Although the Cardoso
administration and its economic policies have enjoyed broad political support,
there can be no assurance that it or subsequent administrations will continue
to implement current policies in their present form. See Annex A, "The
Federative Republic of Brazil -- General Information -- Politics and
Governmental Organization."
SPECIAL CONSIDERATIONS RELATING TO THE OFFER
Dilution. An immediate substantial dilution of the aggregate net asset
value of the shares owned by Record Date Shareholders who do not fully
exercise their Rights is likely to be experienced as a result of the Offer
because the Subscription Price is likely to be less than the Fund's then-net
asset value per share, and the number of shares outstanding after the Offer is
likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the terms of the Offer, Record
Date Shareholders who do not fully exercise their Rights should expect that
they will, at the completion of the Offer, own a smaller proportional interest
in the Fund than would otherwise be the case. Although it is not possible to
state precisely the amount of such a decrease in value, because it is not
known at this time what the net asset value per share will be at the
Expiration Date, such dilution could be substantial. For example, assuming
that all Rights are exercised and that the Subscription Price of $_____ is
____% below the Fund's net asset value of $_____ per share on _________, 1995,
the Fund's net asset value per share would be reduced by approximately $_____
per share. The distribution to Record Date Shareholders of transferable
Rights which themselves may have intrinsic value will afford non-participating
Record Date Shareholders the potential of receiving a cash payment upon sale
of such Rights, which may be viewed as compensation for the possible dilution
of their interest in the Fund. No assurance can be given, however, that a
market for the Rights will develop or as to the value, if any, that such
Rights will have.
Unrealized Appreciation. As of [September 30], 1995, there was
approximately $[190] million of net unrealized appreciation in the Fund's net
assets of approximately $[327] million; if realized and distributed, or deemed
distributed, such gains would, in general, be taxable to shareholders,
including holders at that time of Shares acquired upon exercise of the Rights.
See "Taxation -- United States Federal Income Taxes -- General," "--
Distributions" and "-- Non-U.S. Shareholders" in the SAI.
POSSIBLE CHANGE OF CONTROL OF FUND AS A RESULT OF THE OFFER
The Offer could result in a change of control of the Fund, if existing
shareholders do not exercise their Rights. The 1940 Act provides that a
person that beneficially owns 25% of the voting securities of an investment
company is presumed to control such company. Currently, to the Fund's
knowledge, no person beneficially owns 25% of the Fund's Common Stock, its
only class of voting securities. Because the Rights are transferable, and
because there is an Over-Subscription Privilege, it is possible that either an
existing shareholder of the Fund or a person not currently a shareholder could
own 25% or more of the Fund's Common Stock upon completion of the Offer and
thus have presumptive control of the Fund. Control of the Fund could enable a
person to exercise substantial influence over the management of the Fund and
its investment decisions.
NON-DIVERSIFIED STATUS
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act as to the
percentage of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest in a
smaller number of issuers, and, as a result, may be subject to greater risk
with respect to its portfolio securities. However, the Fund has complied and
intends to continue to comply with the diversification
31
<PAGE>
requirements imposed by the Code for regulated investment companies. See
"Taxation -- United States Federal Income Taxes" in the SAI.
TRANSACTION COSTS
The Fund's transaction costs are higher than the transaction costs for the
typical investment company investing in U.S. securities. In addition to
incurring transaction costs associated with converting currency to and from
Reais and Dollars, the Fund incurs brokerage costs on its portfolio
transactions at commission rates that are generally uniform and higher than in
the United States. See "Portfolio Transactions and Brokerage" in the SAI.
DISCOUNT FROM NET ASSET VALUE
The shares of the Fund may trade at a discount from net asset value. This
is characteristic of shares of a closed-end fund and is a risk separate and
distinct from the risk of a decline in the net asset value as a result of a
fund's investment activities. In some cases, however, shares of closed-end
funds may trade at a premium. The Fund's shares have traded in the market
above, at and below net asset value since the commencement of the Fund's
operations. Since 1993, the Fund's shares have generally traded at a slight
discount to net asset value. See "Market and Net Asset Value Information."
THE BRAZILIAN SECURITIES MARKET
INTRODUCTION
The Brazilian stock market, which dates from the mid-nineteenth century, is
one of the largest equity securities markets in the developing world, as
measured by market capitalization. The price/earnings ratio of the companies
in the portfolio of the Fund at December 31, 1994 weighted to reflect their
market capitalization was approximately [ ]. Participation by foreign
investors in the Brazilian securities market has been relatively low, partly
as a result of complex registration and fiscal regulations. This regulatory
structure has been changed to facilitate access to this market by foreign
investors. See "Foreign Investment and the Fund."
Institutional participation in the Brazilian securities market is
significant. In 1994, for example, approximately [ ]% of the value of all
trades of equity securities on the Sao Paulo Stock Exchange (the "Sao Paulo
Exchange") was represented by trades for public and private companies, pension
funds, mutual funds, insurance companies and investment companies.
BACKGROUND AND DEVELOPMENT
In 1964, Brazil introduced a system of monetary correction and indexation
for companies to adjust their financial statements to account for the effects
of inflation, and in 1964 and 1965 laws were passed to regulate the capital
markets and thereby increase investor confidence. In the 1960's the
Government also introduced various tax incentives to encourage the development
of pools of capital investing in the securities market. As a result, by the
late 1960's, institutional participation in the Brazilian stock market had
substantially increased. The period of the 1960's and 1970's, which was a
period of significant growth in the economy and in corporate profits, also saw
a significant increase in the number of new issues of securities and in
trading.
As growth in demand for shares outpaced growth in supply, there was a
speculative boom in 1971, which was followed by a sharp decline, as a
consequence of which the stock market experienced a difficult time between
1972 and 1975.
In 1976, the Government began new efforts to stimulate interest and
confidence in the market. The Government adopted a new corporation law that
is generally similar to those in the United States. Among other things, the
law imposes reporting and accounting requirements (including adjustments for
inflation and monetary correction) and specifies the duties of care of
management and the responsibility of
32
<PAGE>
controlling shareholders. Also in 1976, legislation was passed creating the
Brazilian Securities Commission with the dual objective of regulating the
securities market and encouraging the development of that market. Other
measures, beginning in 1974, included an attempt to attract foreign investors
through special investment companies. Total equity capital raised reached a
peak of $1,187.4 million in 1986. In each of 1987 and 1988, the amount of
equity capital raised was below $400 million. It rose to $601.9 million in
1989, but again declined to $465.6 million in 1990. For the first half of
1991, the Dollar volume of equity capital raised was $324.7 million.
Stock prices in local currency terms have shown a strong upward trend;
however, in inflation-adjusted terms or in Dollar terms, the performance has
been erratic. On an unadjusted basis, stock prices on the Sao Paulo Exchange
[change in prices for last several years]. Adjusted for inflation, the
comparable figures are [ ], respectively. In Dollar terms, stock prices
[change in prices for last several years]. [Summary of recent performance.]
THE BRAZILIAN STOCK EXCHANGES
The Fund's policy is normally to invest at least 70% of its total assets in
common and preferred stocks listed on the Stock Exchanges or traded in over-
the-counter markets organized by entities accredited by the Brazilian
Securities Commission. Currently no entities have been so accredited. There
are nine Stock Exchanges in Brazil, but the Sao Paulo Exchange ("BOVESPA") and
the Rio de Janeiro Stock Exchange (the "Rio Exchange") are by far the most
important, accounting for over 98% of the daily trading activity in 1994. The
Rio Exchange was organized in 1845 and currently has 75 member brokers, with
an additional 8 non-member (but authorized) brokerage firms. The BOVESPA was
founded in 1890 and today has 96 member and non-member (but authorized)
brokerage firms. Substantially all of the Fund's transactions in common and
preferred stocks have been conducted on the BOVESPA and Rio Exchange. Both
Stock Exchanges are owned by their member firms, not by the Government.
In both the Rio Exchange and BOVESPA trades are effected through both the
floor bidding and electronic systems. In the Rio Exchange, electronic trades
are effected through the National Electronic Trading System ("SENN"), a
computerized system inaugurated in 1991, which links the Rio Exchange
electronically with seven small regional exchanges. In the BOVESPA, trades
are effected through the Electronic Trading System introduced in 1990, linking
brokerage firms in any part of the country with the BOVESPA.
The shares of a company listed on any of the Stock Exchanges may be traded
on any other exchange. As of _________, the market capitalization of the
approximately [ ] companies listed on the Stock Exchanges was approximately
US$____ billion. Typically, the shares of certain companies are much more
actively traded on one of the two major stock exchanges than on the other.
For example, the stocks of Government-controlled companies (with the exception
of Petrobras) tend to be more actively traded on the Rio Exchange, while those
of the private sector companies are more typically traded on the BOVESPA.
Stocks, options thereon and stock forward and futures contracts are traded
on both the BOVESPA and the Rio Exchange. Sellers of stock options must
deposit initial margin with the Stock Exchanges in an amount equal to two
times the amount of the premium of the option or such greater amount as the
Stock Exchanges establish from time to time, and are required to make payments
of variation margin.
For the year ended December 31, 1994, forward transactions in stocks
accounted for approximately [ ]% of the combined value of trading on all the
Stock Exchanges. A forward contract for a stock involves an agreement by the
seller to make delivery of an agreed-upon quantity of shares of a particular
stock at an agreed upon price on a date that is 30, 60, 90, 120, 150 or 180
days following the date of the contract. Unlike the case of stock futures
contracts, the size of a stock forward contract is not standardized, and there
is virtually no secondary market for stock forward contracts. Participants in
both the stock forward contract and stock futures contract markets must
deposit margin in an amount that,
33
<PAGE>
under current Brazilian Securities Commission regulations, is fixed by the
Stock Exchanges but may not be less than 20% of the value of the contract.
Variation margin is also collected pursuant to Stock Exchange rules.
At present, both the Regulations and the U.S. Commodity Exchange Act do not
permit the Fund to enter into stock futures contracts.
Most of the market capitalization and most of the trading volume of the
Stock Exchanges consist of preferred stock, rather than common stock.
Preferred stock in Brazil typically is non-voting. Dividends on preferred
stock are generally paid in an amount at least equal to a stated minimum rate,
expressed as a percentage of net profits of the issuing company. If a company
distributes additional profits after paying the holders of its common shares
an amount equal to the per share minimum amount previously paid to holders of
its preferred stock, the holders of its common and preferred stocks typically
share equally on a per share basis in such additional profits.
The value of all cash transactions effected on the BOVESPA and the Rio
Exchange during the years 1993 and 1994, and the daily trading averages of
each exchange, are shown in the following table, together with the total
number of companies listed on each exchange and their market values at the end
of each year.
<TABLE>
<CAPTION>
VALUE OF ALL CASH TRANSACTIONS EFFECTED ON THE
BOVESPA AND THE RIO EXCHANGE AND DAILY TRADING AVERAGES
(MILLIONS OF US$)
1994 1993
--------- ---------
<S> <C> <C>
VALUE OF TOTAL SHARES TRADED
ANNUAL 71,624 14,130
DAILY 360 157
VALUE OF CASH TRADES
ANNUAL 47,483 8,913
DAILY 245 113
MARKET VALUE END OF YEAR 189,058 99,430
COMPANIES LISTED END OF YEAR 544 550
</TABLE>
Both exchanges publish stock price indexes. The Sao Paulo Index
("IBOVESPA") currently consists of stocks that represent an aggregate value of
[ ]% of the cash volume traded in the previous twelve months. The index is
reevaluated every four months based on the previous twelve months' rating.
The Rio Index currently includes [ ] stocks weighted to reflect market
values.
THE PRIMARY MARKETS
Equity Market. Over the past decade, Brazil has had one of the most active
primary equity markets in the developing world. The volume of new issues has
fluctuated widely from year to year, depending on market conditions. There
has been increasing participation of institutional investors, particularly
pension funds, in the new issues market. The following table indicates the
growth of the primary equity markets over the past several years.
34
<PAGE>
<TABLE>
<CAPTION>
TOTAL EQUITY TOTAL EQUITY
NUMBER OF CAPITAL RAISED IN CAPITAL RAISED IN
YEAR NEW ISSUES MILLIONS OF R$ MILLIONS OF DOLLARS
- ----- ---------- ----------------- -------------------
<S> <C> <C> <C>
1992 28 1.03 231.46
1993 24 48.68 417.39
1994 48 1,768.53 2,590.65
1995 12 684.84 790.09
</TABLE>
- -----------
(1) Through June 30.
Source: Brazilian Securities Commission.
New issues may be underwritten only by investment banks, brokerage firms
("corretoras") and securities dealers ("distribuidoras") and are required to
be previously registered with the Brazilian Securities Commission, which
reviews the issuer's compliance with regulatory and disclosure procedures.
Shares can be issued at par or no-par value, and the offering price may be of
any value (except below par) as long as it is satisfactorily justified by the
company, taking into account market quotations and the net worth and profit
expectations of the company, and would not result in any unjustified dilution
of the interests of existing shareholders.
Brazilian legislation provides for preemptive rights to existing
shareholders to subscribe for an offering of shares in proportion to their
holdings within not less than 30 days after the announcement of approval of a
capital increase by shareholders.
Since April 1992, only registered securities have been traded on the Stock
Exchanges.
Debt Securities Market. Corporate bonds are sold through public offerings,
as well as by private placements, and the same regulations and procedures for
new issues of stocks are applicable to corporate bonds. Corporate bonds
typically have maturities of three to five years, subject to periodic
renegotiation of terms. In 1994, new issues of corporate bonds totaled
approximately $[ ] billion in principal amount.
The Government typically sells its debt instruments in primary offerings
through auctions in which certain financial institutions having the requisite
minimum capital are eligible to bid.
Under the Regulations as now in effect, the Fund is not permitted to invest
in the debt market. For a further description of Government debt securities,
see "The Secondary Markets -- Debt Securities Market."
THE SECONDARY MARKETS
Equity Market. Equity securities may be traded on the Stock Exchanges or
in the over-the-counter market. Trades on the Stock Exchanges are effected
through brokerage firms (member firms) acting as brokers or as principals.
35
<PAGE>
Information regarding listed securities (quotations, trading volume,
financial data, stock price indices, etc.) is available through a network of
computer terminals located in offices of brokerage firms, investment banks,
securities dealers, institutional investors and others.
The over-the-counter market is much smaller than the stock exchange market
for listed securities. While listed securities may be traded only on Stock
Exchanges, there is a growing over-the-counter market for unlisted stocks that
is maintained by securities dealers that are not members of any of the Stock
Exchanges, investment banks and brokerage firms. Regulations were enacted by
the Brazilian Securities Commission in the beginning of 1985 with respect to
the over-the-counter market that require the disclosure of all transactions
executed in that market. Brazilian companies with securities traded in the
over-the-counter market must be registered with the Brazilian Securities
Commission and are subject to the same disclosure and periodic reporting
requirements as listed companies.
Under the Regulations, the Fund is not permitted to buy shares in the over-
the-counter market (except that the Fund may subscribe for shares offered in a
primary or secondary public offering), but would be permitted to do so if the
Brazilian Securities Commission authorizes one or more entities to organize
that market. The Brazilian Securities Commission has under consideration
regulations with respect to the procedures for such authorization.
The trading volume on the Stock Exchanges is presented in the following
table:
<TABLE>
<CAPTION>
TRADING VOLUME ON ALL STOCK EXCHANGES
(IN MILLIONS OF US$)
YEAR CASH FORWARD FUTURES OPTIONS TOTAL
MARKET MARKET MARKET MARKET
------ ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1986 18,718.40 3,500.50 87.90 7,411.20 29,901.10
1987 6,393.70 412.40 48.10 3,094.40 10,044.80
1988 12,655.70 301.20 0.00 4,706.80 17,878.40
1989 14,030.40 273.30 0.00 2,092.30 17,193.10
1990 4,988.90 81.70 0.00 450.80 5,617.60
1991 (5) 3,031.00 21.30 0.00 563.00 3,615.30
1992 (6) 6,479.29 NA NA 979.32 8,543.16
1993 (6) 10,766.50 NA NA 3,822.14 16,927.36
1994 (6) 65,192.27 NA NA 19,264.76 98,409.23
1995 (6) 27,933.83 NA NA 8,180.54 40,526.30
</TABLE>
36
<PAGE>
(1) Conversion based on average annual exchange rates.
(2) Based on aggregate contract values.
(3) Based on aggregate value of premiums and the purchase price of securities
delivered upon exercise of contracts.
(4) Total includes transactions in regional development shares, not shown
separately.
(5) Through June 30
(6) Volume for Bovespa and SENN only.
Source: Brazilian Securities Commission
For an original listing on a Stock Exchange, a company must be previously
registered with the Brazilian Securities Commission. The Stock Exchanges
currently impose no requirements with respect to the company's size, capital,
number of shares outstanding or earnings for listing.
Brokerage fees are charged directly by member firms according to marginal
rates which apply to transactions effected on any Stock Exchange. Such rates
descend on a sliding scale and currently range from [ ]% to [ ]% of the
value of the securities traded. Transactions of a value below a specified
amount are charged a flat fee. Brokerage fees may be increased or reduced by
100% of the rate set out in the sliding scale, upon agreement between the
parties. The Fund, as an investment company, is eligible for a 50% discount
from posted commission rates and currently receives such a discount on
commissions.
Movements in both the Rio Index and the IBOVESPA are set out in the table
below.
RIO INDEX (1) IBOVESPA (2)
-------------------------- -----------------------------
HIGH LOW HIGH LOW
-------------------------- -----------------------------
1986 0.00005985 0.00002543 0.00020316 0.00006237
1987 0.00005764 0.00001848 0.00016293 0.00005381
1988 0.00122070 0.00005231 0.00331860 0.00012444
1989 0.02465000 0.00117607 0.06403900 0.00314240
1990 0.12752000 0.02534000 0.31289000 0.06415000
1991 2.36547000 0.11746000 6.04010000 0.25342000
1992 25.13000000 2.48517000 68.19400000 6.32390000
1993 1414.10000000 24.73300000 3769.20000000 71.98200000
1994 20438.00000000 1480.10000000 55672.00000000 3760.00000000
1995 18514.00000000 9574.00000000 48559.00000000 22712.00000000
(1) Base: December 29, 1983 = 0.000001
(2) Base: January 2, 1968 = .00000000.1
(3) Updated as of October 10
37
<PAGE>
[The preceding table is not adjusted for the effects of inflation and does
not reflect changes in the Real-U.S. Dollar exchange rate.] The following
table shows changes in the IBOVESPA, as (1) measured in Brazilian currency
terms, (2) adjustment for inflation, and (3) measured in U.S. Dollars.
PERCENTAGE CHANGES IN THE IBOVESPA
ADJUSTED FOR IN U.S.
PERIOD UNADJUSTED (%) INFLATION (%)(2) DOLLARS (%)(3)
- --------------- ----------------- ---------------- ----------
Dec. 85-Dec. 86 40% -15% -1%
Dec. 86-Dec. 87 36% -74% -72%
Dec. 87-Dec. 88 2577% 135% 154%
Dec. 88-Dec. 89 1778% 0% 25%
Dec. 89-Dec. 90 308% -74% -73%
Dec. 90 -Dec. 91 2278% 310% 282%
Dec. 91-Dec. 92 1029% -10% -3%
Dec. 92-Dec. 93 5413% 96% 110%
Dec. 93-Dec. 94 1052% 14% 59%
The following tables set forth economic sectors and the numbers of listed
companies in each sector traded on the Stock Exchanges in 1993 and 1994 and
trading values and volumes on each sector on all exchanges, on the BOVESPA and
the Rio Exchange.
The table on this page shows certain financial and other information for
the year ended December 31, 1994 (unless otherwise indicated) for the 25
companies that were most actively traded on the Stock Exchanges in 1994.
IN MILLIONS OF DOLLARS
------------------------------------------
NET INCOME SHAREHOLDER'S TOTAL
ISSUER SALES AFTER TAX EQUITY ASSETS
- ---------------- -------- ------------- ------------- -------
ACESITA 713 79 847 1,249
ARACRUZ 638 314 2,024 3,255
BARDELLA 73 35 235 267
BR DISTRIBUIDORA 6,821 151 892 1,343
BRADESCO NA 527 4,335 21,640
BRAHMA 981 139 1,108 1,691
BRASMOTOR (cons) 2,001 71 479 1,553
CEMIG 1,706 697 7,097 10,010
38
<PAGE>
CESP 3,081 396 11,743 21,714
CEVAL (cons) 1,938 45 718 1,592
COPENE 1,233 137 2,718 3,867
COPESUL 663 21 987 1,167
COSIPA 1,305 45 2,012 3,839
CPFL 1,209 22 2,257 2,989
SID.NACIONAL 2,209 154 5,500 6,886
SID.TUBARAO 889 241 2,883 3,704
ELETROBRAS (cons) 5,889 1,856 64,806 100,187
FOSFERTIL 221 114 453 899
ITAU BANCO NA 378 3,043 16,484
ITAUSA (cons) NA 440 4,443 19,946
J. B. DUARTE 495 1 78 121
LIGHT 1,520 144 6,528 7,851
LOJAS AMERICANAS (cons) 1,641 41 399 816
PETROBRAS 16,315 1,413 18,906 28,107
REFRIPAR 477 24 269 403
RHODIA-STER (cons) 437 10 370 682
SADIA CONCORDIA 2,446 50 503 1,287
SHARP 1,072 35 199 738
TELEBRAS (cons) 7,780 562 21,562 32,539
TELESP 2,183 283 7,299 10,360
USIMINAS 1,832 345 2,444 3,949
VALE 2,871 645 9,707 12,454
VARIG 3,340 202 323 3,337
Source: BOVESPA
IN MILLIONS OF DOLLARS
----------------------------
39
<PAGE>
NET
INCOME SHAREHOLDERS' TOTAL
SALES AFTER TAX EQUITY ASSETS
----- --------- ------------ ------
--------------------
Source: Brazilian Securities Commission
The following tables contain certain 1992, 1993 and 1994 share price and
other information for the 25 companies that were most actively traded on the
Stock Exchanges in 1994. Trading in the equity securities of these companies
accounted for approximately 63% and 62% of the trading value on the Stock
Exchanges for 1993 and 1994, respectively.
<TABLE>
<CAPTION>
EXCHANGE PRICE/ STOCK
WHERE STOCK PRICE EARNINGS PRICE PRICE/
TYPE OF MOST 12/28/90 RATIO 09/11/91 EARNINGS RATIO
ISSUER SHARE TRADED (IN R$) 12/28/90 (IN R$) 09/11/91
- --------------- --------- ------- ---------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Source: Brazilian Securities Commission.
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
AMOUNT TRADED AMOUNT TRADED YEAR ENDED
IN 1993 IN 1994 DECEMBER
(IN US$ MILLIONS) (IN US$ MILLIONS) (IN US$ MILLIONS)
---------------------- --------------------- -----------------
PERCENTAGE PERCENTAGE
ISSUER VALUE OF TOTAL VALUE OF TOTAL 1993 1994
------ ----- ---------- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ACESITA 21.59 0.06% 419.24 0.48% 480 1,163
ARACRUZ 77.46 0.20% 362.82 0.41% 1,386 2,192
BR DISTRIBUIDORA 29.94 0.08% 425.09 0.49% 1,131 1,545
BRADESCO 360.69 0.94% 761.68 0.87% 4,064 5,190
BRAHMA 202.16 0.53% 387.37 0.44% 1,440 2,232
BRASMOTOR 105.15 0.27% 311.44 0.36% 539 1,075
CEMIG 935.48 2.43% 1,531.22 1.75% 2,337 3,080
CESP 69.59 0.18% 526.82 0.60% 3,856 4,254
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
AMOUNT TRADED AMOUNT TRADED YEAR ENDED
IN 1993 IN 1994 DECEMBER
(IN US$ MILLIONS) (IN US$ MILLIONS) (IN US$ MILLIONS)
--------------------- ---------------------- ------------------
PERCENTAGE PERCENTAGE
ISSUER VALUE OF TOTAL VALUE OF TOTAL 1993 1994
------ ----- ---------- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
COPENE 63.00 0.16% 331.12 0.38% 506 1,563
COPESUL NA 0.00% 179.79 0.21% NA 886
COSIPA NA 0.00% 169.51 0.19% NA 1,265
CPFL 117.17 0.30% 237.25 0.27% 947 1,688
CSN 405.95 1.06% 914.27 1.05% 2,111 2,681
ELETROBRAS 3,117.13 8.11% 8,856.63 10.13% 8,417 18,635
ITAU BANCO 141.15 0.37% 291.09 0.33% 2,294 3,373
J. B. DUARTE 1.02 0.00% 1,509.04 1.73% 13 12
LIGHT 167.17 0.43% 4,38.02 0.50% 2,849 3,750
PETROBRAS 1,206.63 3.14% 5,418.84 6.20% 9,408 13,703
SADIA CONCORDIA 99.33 0.26% 275.05 0.31% 441 916
SHARP 2.94 0.01% 124.71 0.14% 58 321
SIDERURGICA TUBARAO 118.21 0.31% 449.70 0.51% 665 1,102
TELEBRAS 15,112.18 39.3% 24,480.40 28.00% 10,184 14,275
TELESP 421.36 1.10% 1,146.21 1.31% 5,479 7,280
USIMINAS 382.43 0.99% 1,193.21 1.36% 1,585 3,026
VALE 1,028.94 2.68% 3,232.31 3.70% 4,162 9,279
</TABLE>
Source: BOVESPA
DEBT SECURITIES MARKET
As noted above, bonds -- whether public or corporate -- are not generally
listed on the Stock Exchanges. Secondary transactions in bonds are generally
made in the over-the-counter market directly between market intermediaries and
investors, most of whom are institutional.
In addition to corporate debentures and commercial paper, the secondary
market for debt investments includes ____________. [Information on newly
established and/or discontinued debt investments.]
State and municipal bonds, as well as corporate debentures and
certificates of deposit, are also traded over-the-counter.
41
<PAGE>
The secondary market for public sector bonds has been active and liquid.
Such bonds are also used in repurchase agreements. The following table shows
the amounts of public sector bonds outstanding as of the end of the periods
shown (other than those held by the Central Bank):
42
<PAGE>
OUTSTANDING PUBLIC SECTOR BONDS AS OF YEAR-END
(OTHER THAN THOSE HELD BY THE CENTRAL BANK)
------------------------------------------------
[TYPES OF BONDS]
(IN MILLIONS OF DOLLARS)
SOURCE: CENTRAL BANK.
IN ADDITION, SOME BRAZILIAN COMPANIES HAVE SUCCESSFULLY ACCESSED THE DEBT
SECURITIES MARKETS OUTSIDE OF BRAZIL. THE ISSUANCE AND DISTRIBUTION OF SUCH
DEBT SECURITIES IS GENERALLY SUBJECT TO PRIOR AUTHORIZATION BY THE CENTRAL
BANK. THE GOVERNMENT HAS SOUGHT TO REGULATE THE USE OF SUCH DEBT SECURITIES
AS FLEXIBLY AS POSSIBLE, SUBJECT TO THE LIMITATIONS SET FORTH BY CURRENT
LEGISLATION.
FUTURES MARKET
There is only one major commodity futures exchange in Brazil, the Bolsa
de Mercadorias & Futuros ("BM&F") in Sao Paulo. The BM&F resulted from the
merger in May 1991 of the Bolsa Mercantil & Futuros and the Bolsa de
Mercadorias de Sao Paulo. Its contracts include gold, cattle, coffee, cotton,
the U.S. Dollar, inter-financial certificates of deposits ("CDI") and the
IBOVESPA. For the year ended December 31, 1994, the average trading volume on
the BM&F for futures contracts on the IBOVESPA was [________] contracts.
The authority to regulate the futures market in Brazil has been given to
the Brazilian Securities Commission in the case of futures contracts on stocks
and stock indices, and to the Monetary Council in the case of all other
futures contracts. Stock options and forwards are traded on the Stock
Exchanges, while all other futures contracts are traded on the Brazilian
commodity futures exchanges. The Stock Exchanges could in the future develop
markets for stock index futures contracts.
The Brazilian Securities Commission has adopted regulations governing
stock futures. [To date, neither the Brazilian Securities Commission nor the
Monetary Council has adopted regulations governing other types of futures
trading, although the Brazilian Securities Commission reviews rules of the
Stock Exchanges and the commodity futures exchanges relating to stock index
futures. The Stock Exchanges have rules requiring the collection of initial
margin and variation margin on futures contracts, and adjust the amount of
margin required depending on market conditions.]
MARKET REGULATION
The Brazilian securities markets are subject to regulation by the
Monetary Council and the Brazilian Securities Commission. The Brazilian
Securities Commission is managed by a board of four Commissioners and one
Chairman, all of whom are appointed by the President of Brazil. It has
disciplinary powers over individuals and institutions, including investors,
intermediaries and the Stock Exchanges. The Stock Exchanges, as self-
regulatory organizations, are considered auxiliary organizations of the
Brazilian Securities Commission, although the Stock Exchanges are owned by
member firms and not by the Brazilian Securities Commission or any other
Government agency. In addition, the Brazilian Securities Commission also has
the function of promoting and supporting the development of the corporate
securities market in Brazil.
The activities of the Brazilian Securities Commission are guided by
certain basic principles: the protection of investors; the strengthening of
self-regulation; full disclosure of all material information; the development
of Brazil's securities markets; and the setting of technical and ethical
standards to be observed by all participants in the market.
43
<PAGE>
The licensing and the implementation of the requirements for financial
institutions to operate in the markets are functions of the Central Bank,
which also maintains permanent supervision over such institutions. Exercise of
all professional financial services activities in the corporate securities
markets requires the prior authorization of the Brazilian Securities
Commission.
All companies must register with the Brazilian Securities Commission
before issuing and selling securities to the public. Such registration
requires the disclosure of information about the company, including financial
reports, compliance with statutory norms, corporate activities and controlling
shareholders. The companies must update the information on an annual basis
and, in addition, file interim and quarterly reports. Moreover, any fact or
event that may materially affect a registered company is required to be
immediately reported by its management to the Brazilian Securities Commission.
Such information is normally also immediately released to the Stock Exchanges
and the public. However, in certain cases, the Brazilian Securities
Commission may authorize the management of a company to postpone its
disclosure of such information until such later time as is deemed to be in the
best interests of the company. Noncompliance with these registration and
disclosure rules may subject the company and its management to penalties
provided by law.
The issuance of any type of security to be placed in the public markets
must first be registered with and authorized by the Brazilian Securities
Commission. Responsibility for the reported information rests with both the
issuing company and the lead underwriter.
The over-the-counter market is also regulated by the Brazilian Securities
Commission. In general, if a company's securities are traded over-the-
counter, it is subject to regulations similar to those imposed on listed
companies. In addition, all transactions effected over-the-counter must be
reported to the Brazilian Securities Commission which, in turn, makes such
reports available to the public.
Directors and officers of a company are required to report their share
ownership in the company's securities at the time they take office, and, as a
general matter, must subsequently report any transactions in the company's
securities to its shareholders.
In addition, "insider trading" is expressly prohibited by the Brazilian
corporation law. This prohibition may be enforced by means of lawsuits
brought by shareholders and by administrative procedures of the Brazilian
Securities Commission.
Settlement procedures for trades effected on the Stock Exchanges are
prescribed by the Stock Exchanges. The Fund has not experienced material
delays in effecting settlement and, based on such experience, the Manager does
not anticipate any material delays in the future.
FOREIGN INVESTMENT AND THE FUND
Foreign investment in Brazilian securities is regulated by exchange
control laws and regulations of the Monetary Council, as well as by laws that
restrict investment by foreigners in particular sectors of the Brazilian
economy. See "Foreign Investment and Exchange Controls in Brazil." Foreign
portfolio investment in the Brazilian securities market is regulated by the
Monetary Council and the Brazilian Securities Commission.
Participation by foreign investors in the Brazilian securities market had
been small in the years prior to the Fund's organization, partly as a result
of applicable restrictions. The Fund was the first publicly offered United
States investment company organized to invest in Brazilian securities.
In an effort to increase foreign investment in Brazil, the Central Bank
implemented Resolution 1289 on March 20, 1987. In the first three Annexes
under Resolution 1289, the following mechanisms for foreign investment in
Brazilian securities were authorized: (i) Foreign Capital Investment
Companies-Annex I (an incorporated legal entity organized in Brazil where the
foreign investor invests through the purchase of shares which are redeemable
at the investor's request after a period of not less than 90 days), (ii)
Foreign Capital Investment Funds-Annex II (an investment fund organized in
Brazil in the form of an
44
<PAGE>
"open condominium," where the foreign investor invests through the purchase of
"quotas" in the fund, redeemable upon the investor's request after a specified
period of not less than 90 days) and (iii) Managed Portfolios of Bonds and
Securities-Annex III (a foreign investment company which may invest directly
in Brazilian securities, subject to certain diversification requirements and
other investment restrictions). The Fund invests in the Brazilian securities
market under Annex III and was the first entity to be authorized to do so.
There are presently three other entities authorized under Annex III.
In 1991, the Monetary Council added Annex IV and Annex V to Resolution
1289, in an effort to promote further foreign capital investment in Brazil.
Annex IV, introduced by the Monetary Council on May 31, 1991 and
implemented on June 3, 1991, extends the favorable treatment regarding
organization, administration and taxation granted to Annex III foreign
investment funds to foreign institutional investors, such as pension funds,
financial institutions, insurance companies and mutual funds. In some
respects, the regulations applicable to Annex IV are more favorable than those
applicable to Annex III. For example, Annex IV is not subject to the
portfolio composition or investment duration requirements applicable to Annex
III. There are presently [ ] entities authorized to operate under Annex IV.
[Other Funds to be authorized under Annex IV.]
Annex V, introduced on July 31, 1991, provides still greater flexibility
to foreign investors by permitting foreign investments in Brazilian securities
through the mechanism of American Depository Receipts ("ADRs") and
International Depository Receipts ("IDRs"). The issuance of ADRs and IDRs
must be approved by the Brazilian Securities Commission. The foreign capital
is registered in the name of the foreign issuer of the ADR or IDR and is
permitted to enter and exit Brazil without restriction. The holders of ADRs
and IDRs may request and obtain redemption at any time. In addition, holders
of ADRs and IDRs enjoy favorable tax treatment similar to that applicable to
the Fund and to foreign investors who utilize other permitted mechanisms of
access to the Brazilian securities market. For example, no withholding tax
will be levied on capital gains related to the redemption of ADRs or IDRs, and
withholding tax will be levied on dividends received by the holders of ADRs or
IDRs at the lower rate of 15%.
The development of alternatives to the Fund as a vehicle through which
United States and other foreign investors may invest in Brazilian securities
is one of the factors that may affect whether shares of the Fund trade at a
premium or discount in relation to net asset value. See "Net Asset Value" in
the SAI. This development should also result in broadened investor interest
in, and greater liquidity of, the Brazilian securities market.
INVESTMENT ADVISERS AND ADMINISTRATOR
GENERAL
The Fund's advisory structure reflects a bi-national United States-
Brazilian arrangement for providing investment advice and management to pursue
the Fund's investment objective of long-term capital appreciation through
investing in Brazilian securities. The Fund's Manager is Scudder, Stevens &
Clark, Inc., a United States investment counsel firm. The Brazilian Adviser
is Banco Icatu S.A. The Fund may retain the services of advisers or
consultants with respect to Brazilian securities markets in addition to the
Brazilian Adviser when the Board of Directors determines it to be appropriate.
The Fund's Brazilian Administrator is Banco de Boston S.A.
THE INVESTMENT MANAGER
Scudder, Stevens & Clark, Inc., an investment counsel firm whose address
is 345 Park Avenue, New York, New York 10154, acts as investment adviser to
and manager and administrator for the Fund. The Manager is a leading global
investment manager with offices throughout the United States and subsidiaries
in London and Tokyo. The Manager was established in 1919 as a partnership and
was
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restructured as a Delaware corporation in 1985. The principal source of the
Manager's income is professional fees received from providing continuing
investment advice. The Manager provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations.
The Manager has been active in international investment for over 40 years
and in emerging markets investment for over 20 years. As of December 31,
1994, the Manager and its affiliates had in excess of $90 billion in assets
under their supervision, more than $22 billion of which was invested in non-
U.S. securities. As of that date, the Manager's clients included nine closed-
end United States investment companies with assets aggregating over $1.5
billion, and more than 50 open-end United States investment company portfolios
with assets aggregating over $36 billion. The Manager's investment company
clients, in addition to the Fund, include:
. The Argentina Fund, Inc., which commenced operations in 1991 and
invests primarily in equity securities of Argentine companies.
. The First Iberian Fund, Inc., which commenced operations in 1988 and
invests primarily in equity securities of Spanish and Portuguese companies.
. The Japan Fund, Inc., which commenced operations in 1962 and invests
primarily in securities of Japanese companies.
. The Korea Fund, Inc., which commenced in 1984 and invests primarily
in equity securities of Korean companies.
. The Latin America Dollar Income Fund, Inc., which commenced
operations in 1992 and invests primarily in Dollar-denominated debt securities
of Latin American issuers.
. Scudder Greater Europe Growth Fund, which commenced operations in
1994 and invests primarily in equity securities of European companies.
. Scudder International Fund, which was initially incorporated in
Canada in 1953 and invests primarily in foreign equity securities.
. Scudder Latin America Fund, which commenced operations in 1992 and
invests in securities of Latin American issuers.
. Scudder New Asia Fund, Inc., which commenced operations in 1987 and
invests primarily in equity securities of Asian companies.
. Scudder New Europe Fund, Inc., which commenced operations in 1990
and invests primarily in securities of European companies.
. Scudder Pacific Opportunities Fund, which commenced operations in
1992 and invests in equity securities of Pacific Basin companies, excluding
Japan.
. Scudder World Income Opportunities Fund, Inc., which commenced
operations in 1994 and invests primarily in income securities issued by
corporate and sovereign entities throughout the world.
The Manager also provides investment advisory services to the mutual
funds with assets aggregating over $11 billion that comprise the AARP
Investment Program from Scudder. With respect to this Program, the Manager
manages a total of eight investment company portfolios pursuing a variety of
investment objectives, including money market returns, growth, income, growth
and income and tax-free income. The Manager also manages accounts for several
large pension plans.
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The Fund is managed by a team of investment professionals who each play
an important part in the Fund's management process. Team members work together
to develop investment strategies and select securities for the Fund's
portfolio. They are supported by the Manager's large staff of economists,
research analysts, traders and other investment specialists who work in the
Manager's offices across the United States and abroad. The Manager believes
its team approach will benefit Fund investors by bringing together many
disciplines and leveraging the Manager's extensive resources.
Lead Portfolio Manager Edmund B. Games, Jr. has set Fund investment
strategy and overseen its daily operation since 1988. Mr. Games joined
Scudder's equity research area in 1960. William F. Truscott, Portfolio
Manager, helps set the portfolio's general investment strategies. Mr.
Truscott, a member of the portfolio's team since 1993, has over 10 years of
experience in the financial industry. Nicholas Bratt, Portfolio Manager, has
been a member of the portfolio team since 1988 and has over 20 years of
experience in worldwide investing. Mr. Bratt, who has been at Scudder since
1976, is the head of Scudder's Global Equity Department.
The Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In managing the Fund, the
Manager utilizes reports, statistics and other investment information from a
wide variety of sources, including the Brazilian Adviser and other brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Manager or the Brazilian Adviser. Investment decisions, however, are
based primarily on investigations and critical analyses by its own research
specialists and portfolio managers, as well as investigations that may include
visiting companies, touring facilities, and interviewing suppliers and
customers.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Manager. Investment decisions for the Fund and the
Manager's other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their
investments generally. Frequently a particular security may be bought or sold
for only one client or in different amounts and at different times for more
than one but less than all client. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling the
security. In addition, purchases or sales of the same security may be made
for two or more clients on the same day. In such event, such transactions
will be allocated among the clients in a manner believed by the Manager to be
equitable to each. In some cases, this procedure could have an adverse effect
on the price or amount of the securities purchased or sold by the Fund.
Purchase and sale orders for the Fund may be combined with those of other
clients of the Manager in the interest of the most favorable net results to
the Fund.
INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATION AGREEMENT
On July 25, 1995, the Fund's shareholders approved a new Investment
Advisory, Management and Administration Agreement (the "Agreement") with the
Manager. Under the Agreement, the Manager makes investment decisions,
prepares and makes available research and statistical data and supervises the
acquisition and disposition of securities by the Fund, all in accordance with
the Fund's investment objective and policies and in accordance with guidelines
and directions from the Fund's Board of Directors. The Manager assists the
Fund as it may reasonably request in the conduct of the Fund's business,
subject to the direction and control of the Fund's Board of Directors. The
Manager maintains or causes to be maintained for the Fund all books and
records required to be maintained under the 1940 Act to the extent such books
and records are not maintained or furnished by the Fund's custodian or other
agents, and furnishes or causes to be furnished all required reports or other
information under Brazilian securities laws, supplies the Fund with office
space in New York and furnishes clerical services in the United States related
to research, statistical and investment work. The Manager renders to the Fund
administrative services such as preparing reports to, and meeting materials
for, the Fund's Board of Directors and reports and notices to shareholders,
preparing and making filings with the Commission and other regulatory and
self-regulatory organizations including preliminary and definitive proxy
materials and
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post-effective amendments to the Fund's registration statement, providing
assistance in certain accounting and tax matters and investor public
relations, monitoring the valuation of portfolio securities, calculation of
net asset value and calculation and payment of distributions to shareholders,
and overseeing arrangements with the Fund's Custodian, including the
maintenance of books and records of the Fund. The Manager also pays the
reasonable salaries, fees and expenses of the Fund's officers and employees
and any fees and expenses of the Fund's directors who are directors, officers
or employees of the Manager, except that the Fund bears travel expenses (or an
appropriate portion of those expenses) of directors and officers of the Fund
who are directors, officers or employees of the Manager to the extent that
such expenses relate to attendance at meetings of the Board of Directors or
any committees of or advisers to the Board. Under the Agreement, the Manager
may render similar services to others.
Under the Agreement, the Fund pays or causes to be paid all of its other
expenses, including, among other things, the following: organization and
certain offering expenses (including out-of-pocket expenses but not overhead
or employee costs of the Manager or of any one or more organizations retained
by the Fund or by the Manager as a Brazilian administrator or adviser of the
Fund); legal expenses; auditing and accounting expenses; telephone, telex,
facsimile, postage and other communications expenses; taxes and governmental
fees; stock exchange listing fees; fees, dues and expenses incurred in
connection with membership in investment company trade organizations; fees and
expenses of the Fund's custodian, subcustodians, transfer agents and
registrars; payment for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and other expenses in connection with the
issuance, offering, distribution, sale or underwriting of securities issued by
the Fund; expenses relating to investor and public relations; expenses of
registering or qualifying securities of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities of the Fund; expenses of preparing and distributing
reports, notices and dividends to shareholders; expenses of the Dividend
Reinvestment and Cash Purchase Plan (except for brokerage expenses paid by
participants in such Plan); costs of stationery; any litigation expenses; and
costs of shareholders' and other meetings.
For its services, the Manager receives a monthly fee at an annual rate of
1.175% of the Fund's average weekly net assets. The Manager has agreed to
waive a portion of its fee such that the effective rate with respect to net
assets in excess of $300,000,000 is 1.075%. The Manager pays the Brazilian
Adviser a monthly fee at an annual rate of 0.125% of the Fund's average weekly
net assets up to and including $150,000,000, 0.075% on the next $150,000,000,
and 0.025% of such net assets in excess of $300,000,000. See "The Brazilian
Adviser." The Manager pays the Brazilian Administrator an annual fee equal to
approximately $50,000 per year plus out-of-pocket expenses. See "The
Brazilian Administrator." The Manager may retain the services of others, in
addition to the Brazilian Adviser and the Brazilian Administrator, but at no
additional cost to the Fund in connection with its services to the Fund.
Under the Investment Advisory, Management and Administration Agreement
between the Fund and the Manager that was in effect prior to July 26, 1995,
the Fund agreed to pay the Manager a monthly fee equal to an annual rate of
1.30% of the first $150,000,000 of average weekly net assets of the Fund,
1.25% net assets on the next $150,000,000, and 1.20% of such net assets in
excess of $300,000,000. Under the Investment Advisory and Management
Agreement between the Fund and the Manager that was in effect prior to October
20, 1993, the Fund agreed to pay the Manager a monthly fee equal to an annual
rate of 1.25% of the average weekly net assets of the Fund.
During the fiscal years ended December 31, 1992, 1993 and 1994, the fees
paid to the Manager under the prior Agreements amounted to $2,512,544,
$2,761,128 and $4,371,086, respectively. The amount paid in 1994 reflects a
reduction of $55,048, which the Manager agreed to pass through to the Fund as
a result of the Brazilian Adviser waiving approximately half of its fees under
its prior contract as of November 1, 1994.
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Under the Agreement, the Manager is permitted to provide investment
advisory services to other clients, including clients which may invest in
Brazilian securities and, in providing such services, may use information
furnished by the Brazilian Adviser and others. Conversely, information
furnished by others to the Manager in providing services to other clients may
be useful to the Manager in providing services to the Fund.
The Agreement by its terms will remain in effect for a period of two
years from July 26, 1995, and will continue in effect from year to year
thereafter if such continuance is specifically approved, at least annually, by
a vote of a majority of the members of the Board of Directors who are not
interested persons of the Manger, the Brazilian Adviser or the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and by
the affirmative vote of either a majority of the Board of Directors or holders
of a majority of the Fund's outstanding voting securities. The Agreement may
be terminated at any time without payment of penalty by the Board of
Directors, by vote of holders of a majority of the outstanding voting
securities of the Fund, or by the Manager on 60 days' written notice (or such
longer period as may be required under the Regulations). The Agreement
automatically terminates in the event of its assignment (as defined under the
1940 Act), but does not terminate upon assignment to a corporate successor to
all or substantially all of the Manager's business, or a wholly-owned
subsidiary of such corporate successor, provided that such assignment does not
result in a change of actual control or management of the Manger's business.
The Agreement provides that the Manager is not liable for any act or
omission, error of judgment or mistake of law or for any loss suffered by the
Fund in connection with matters to which the Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of the Manager in the performance of its duties or from reckless disregard by
the Manager of its obligations and duties under the Agreement.
THE BRAZILIAN ADVISER
Banco Icatu S.A., whose address is Av. Presidente Wilson, 231 2/o/ andar,
Rio de Janeiro, Brazil, an investment adviser registered under the Investment
Advisers Act of 1940, acts as Brazilian Adviser to the Manager pursuant to a
Research and Advisory Agreement, dated July 26, 1995, between the Fund and the
Brazilian Adviser (the "Research Agreement"). The Brazilian Adviser has been
in the business of providing investment advisory services since it was
organized in December 1986 under the laws of the Federative Republic of
Brazil. The Brazilian Adviser is a wholly-owned subsidiary of Icatu
Empreendimentos e Participacoes Ltda., Av. Presidente Wilson, 231 2/o/ andar,
Rio de Janeiro, Brazil, whose parent company is Itaborai Participacoes S.A.
Under the terms of the Research Agreement, the Brazilian Adviser provides
such information, investment recommendations, advice and assistance as the
Manager may, from time to time, reasonably request. The Brazilian Adviser
may, under the terms of the Research Agreement, render similar services to
others, including other investment companies. However, the Brazilian Adviser
is required by the Research Agreement to maintain a separate staff which
prepares and makes specific investment recommendations to the Manager. This
information will be evaluated by the Manager's research department and
portfolio managers in light of their own expertise and information from other
sources, in determining investment decisions for the Fund.
For its services, the Brazilian Adviser receives from the Manager a
monthly fee at the annual rate of 0.125% of the Fund's average weekly net
assets up to and including $150,000,000, 0.075% of such assets on the next
$150,000,000, and 0.025% of such net assets in excess of $300,000,000. The
Brazilian Adviser has agreed to pay fees and expenses of any officer or
director of the Fund affiliated with it, except that the Fund bears travel
expenses of one director, officer or employee of the Brazilian Adviser or any
of its affiliates who is not a resident in the United States to the extent
that such expenses relate to attendance as
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a Fund director at meetings of the Board of Directors in the United States and
also bears the travel expenses of any other director, officer or employee of
the Brazilian Adviser or of any of its affiliates who is a resident in the
United States to the extent such expenses relate to his attendance as a Fund
director at meetings of the Board of Directors held outside of the United
States. Under the Research and Advisory Agreement that was in effect prior to
July 26, 1995, the Fund agreed to pay the Brazilian Adviser a monthly fee
equal to an annual rate of 0.25% of the Fund's average weekly net assets up to
and including $150 million, 0.15% on the next $150 million, and 0.05% of such
net assets in excess of $300 million. For the fiscal years ended December 31,
1992, 1993 and 1994, the aggregate fees incurred by the Manager for the
services of the Brazilian Adviser under the Research Agreement amounted to
$476,503, $502,028 and $617,844, respectively.
The Research Agreement provides that the Brazilian Adviser will not be
liable for any act or omission in the course of, connected with or arising out
of any services rendered under the Research Agreement except by reason of
willful misfeasance, bad faith or gross negligence on the part of the
Brazilian Adviser in the performance of its duties or from reckless disregard
by the Brazilian Adviser of its obligations and duties under the Research
Agreement.
Because the Brazilian Adviser is a Brazilian corporation having
substantially all of its assets outside of the United States, it may be
difficult for United States investors to effect service of process upon the
Brazilian Adviser within the United States or to realize judgments of courts
of the United States based upon civil liabilities of the Brazilian Adviser
under the federal securities laws and other laws of the United States. There
is substantial doubt as to the enforceability in Brazil of such civil remedies
and criminal penalties as are afforded by the federal securities laws in the
United States.
The Research Agreement by its terms will remain in effect for a period of
two years from July __, 1995, and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by
the affirmative vote of a majority of the members of the Board of Directors
who are not interested persons of the Fund, the Manager or the Brazilian
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and by the affirmative vote of either a majority of the Board of
Directors or the holders of a majority of the outstanding voting securities.
The Research Agreement may be terminated at any time without payment of
penalty by the Fund or the Brazilian Adviser on 60 days' written notice (or
such longer period as may be required under the Regulations). The Research
Agreement automatically terminates in the event of the termination of the
Fund's Agreement with the Manager or in the event the Research Agreement is
assigned (as defined under the 1940 Act).
THE BRAZILIAN ADMINISTRATOR
Under the Administration Agreement, dated April 30, 1992, between the
Brazilian Administrator, the Fund and the Manager, the Brazilian Administrator
has agreed to furnish to the Fund and to the Manager such administrative
services and assistance as are required to be furnished by a Brazilian
administrator pursuant to the Regulations and as the Manager, on the Fund's
behalf, may reasonably request, including effecting the registration of the
Fund's foreign capital with the Central Bank, processing remittances of
earnings, capital gains and the return of invested capital, paying the
applicable withholding tax on remittances abroad by the Fund, filing
statements as to the Fund's portfolio and remittances, and handling the
bookkeeping for the Fund's portfolio in Brazil.
As compensation for its services under the Administration Agreement, the
Brazilian Administrator is paid a quarterly fee in Brazilian currency equal to
approximately $50,000 per year, plus out-of-pocket expenses.
Under the Administration Agreement, the Brazilian Administrator will not
be liable for any act or omission in the course of, connected with or arising
out of any services rendered by it under the agreement, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard of its obligations and duties under the
Administration Agreement.
The Administration Agreement by its terms continues in effect, if such
continuance is specifically approved at least annually by the affirmative vote
of the Fund's Board of Directors. The Administration
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Agreement may be terminated at any time, without penalty, by the Manager, by
the Fund's Board of Directors or by vote of the holders of a majority of the
outstanding voting securities of the Fund, upon 60 days' written notice, or by
the Brazilian Administrator, but only after written notice to the Fund, the
Manager and the Brazilian Securities Commission of not less than 60 days (or
such longer period may be required under the Regulations). The Regulations
currently require six months' notice. The Administration Agreement
automatically terminates in the event of its assignment (as defined under the
1940 Act) or the termination of the Agreement between the Fund and the
Manager.
The Regulations reserve to the Brazilian Securities Commission the right
to cancel the authorization of, and approve any successor to, the Brazilian
Administrator. They also provide that, should the authorization to render
services to the Fund be so cancelled, the Manager must apply to the Brazilian
Securities Commission within 15 business days after communication of the
decision to cancel, for authorization to replace the Brazilian Administrator.
Under the Regulations, in such a case, the Brazilian Administrator is obliged
to continue to perform its functions until it is actually replaced.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and expects to distribute at
least annually any net long-term capital gains in excess of net short-term
capital losses (including any capital loss carryover). Net investment income
includes dividends, interest and any net short-term capital gains in excess of
net long-term capital losses (including any capital loss carryover), net of
expenses. See "Taxation -- United States Federal Income Taxes" in the SAI.
The Fund expects to distribute, to shareholders of record as of a date prior
to the issuance of Shares upon exercise of the Rights, substantially all of
its undistributed net investment income (including net short-term capital
gains) and undistributed net realized long-term capital gains [as of such
record date]. Such distributions will, in general, be taxable to shareholders.
See "Taxation -- U.S. Taxation" in the prospectus and "Taxation -- United
States Federal Income Taxes -- General," -- "Distributions" and -- "Non-U.S.
Shareholders" in the SAI. As of September 30, 1995, the Fund had approximately
[$3.4] million of net investment income and approximately [$10.3] million of
undistributed net realized long-term capital gains.
Pursuant to the Plan, each shareholder will be deemed to have elected,
unless The First National Bank of Boston, the Plan Agent, is otherwise
instructed in writing, to have all distributions, net of any applicable U.S.
withholding tax, automatically reinvested by The First National Bank of
Boston, the Plan Agent, in Fund shares pursuant to the Plan. Shareholders who
elect not to participate in the Plan will receive all distributions, net of
any applicable U.S. withholding tax, in cash paid by check in Dollars mailed
directly to the shareholder by The First National Bank of Boston, as dividend
paying agent. Participants in the Plan may terminate their accounts under the
Plan by written notice to the Plan Agent. If such notice is received by the
Plan Agent not less than ten days prior to any dividend or distribution record
date, the termination will be effective immediately; otherwise such
termination will be effective on the first trading day after the payment date
of such dividend or distribution. In the case of shareholders, such as banks,
brokers or nominees, which hold shares for others who are the beneficial
owners, the Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the shareholder as representing the
total amount registered in the shareholder's name and held for the account of
beneficial owners who are to participate in the Plan. A beneficial owner of
shares registered in the name of a bank, broker or other nominee should
consult with such nominee as to participation in the Plan through such
nominee.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare 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
participants at net asset value; provided, however, if the net asset value is
less than 95% of the market price on the valuation date, then the Fund will
issue
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new shares to participants at 95% of the market price. The valuation
date will be the dividend or distribution payment date or, if that date is not
a NYSE trading day, the next preceding trading day. If net asset value
exceeds the market price of Fund shares at such time, participants in the Plan
will be deemed to have elected to receive shares of stock from the Fund,
valued at market price on the valuation date. Participants reinvesting
distributions in additional shares should be treated for U.S. Federal income
tax purposes as receiving a distribution in an amount equal to the fair market
value, determined as of the payment date, of the shares received (regardless
of the net asset value of the shares on the payment date), and should have a
cost basis in such shares equal to such fair market value. If the Fund should
declare an income dividend or capital gains distribution payable only in cash,
the Plan Agent will, as agent for the participants, buy Fund shares in the
open market, on the NYSE or elsewhere, for the participants' account 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 such
funds received from participants to purchase Fund shares in the open market on
or about February 15 and August 15. Any voluntary cash payments received more
than thirty 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 ten
days before February 15 or August 15, as the case may be. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be
invested.
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmation 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 non-
certificated form in the name of the participant, and each shareholder's proxy
will include those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in stock or in cash. However, each participant will pay 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 reinvestment of any dividends or capital gains distributions
payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent
will charge $1.00 for each such purchase for a participant, plus a pro rata
share of the brokerage commissions. 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 attainable.
The receipt of dividends and distributions under the Plan will not
relieve participants of any income tax (including withholding tax) which may
be payable on such dividends or distributions. See "Taxation -- United States
Federal Income Taxes" in the SAI.
Experience under the Plan may indicate that changes are desirable.
Accordingly, 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, in the case of a dividend or distribution, at least 30 days
before the record date for such dividend or distribution. The Plan also may be
amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable laws, rules or policies of a regulatory
authority) only by at least
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30 days' written notice to participants in the Plan. Additional information
about the Plan may be obtained from the Plan Agent, The First National Bank of
Boston, Mail Stop 45-02-09, P.O. Box 644, Boston, MA 02102-0644, telephone
number (617) 575-2900.
TAXATION
For a discussion of U.S. Federal income tax consequences and Brazilian
tax consequences to Record Date Shareholders and Rights Holders with respect
to the Offer, see "The Offer -- U.S. Federal Income Tax Consequences;
Brazilian Tax Consequences" above. For a discussion of certain other U.S. and
Brazilian tax matters applicable to the Fund and its shareholders, see
"Taxation" in the SAI. Shareholders should consult their tax advisers
concerning their own particular situations, including the potential
application of state, local and non-U.S. taxes to their ownership and
disposition of shares of the Fund.
U.S. TAXATION
The Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Code for each taxable year,
although no assurance can be given as to meeting the test for such status.
The Fund intends to distribute to its shareholders each year all of its net
investment income as computed for U.S. Federal income tax purposes. Such
distributions will, in general, be taxable to shareholders. Shareholders not
subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund will inform shareholders of the amount and
nature of distributions made by the Fund.
The Board of Directors will determine each year whether to distribute any
net long-term capital gains in excess of any net short-term capital losses
(including in such losses any capital loss carryovers from prior years) as
computed for U.S. Federal income tax purposes. The Fund presently expects to
distribute such excess to its shareholders each year.
Dividend distributions paid out of the Fund's net investment income
(including short-term capital gains) will be taxable to a U.S. shareholder as
ordinary income, whether received in cash or reinvested in shares. Dividends
paid by the Fund will not qualify for the deduction (currently 70%) for
dividends received by corporations because the Fund's income is not expected
to consist of dividends paid by U.S. corporations. Distributions of net long-
term capital gains (i.e., capital gains from securities held for more than one
year), if any, are taxable as long-term capital gains, whether received in
cash or reinvested in shares, regardless of how long the shareholder has held
the Fund's shares and are not eligible for the dividends-received deduction.
Dividends of net investment income and distributions of net long-term capital
gains paid by the Fund that (i) are declared in October, November or December,
(ii) are payable to holders of record as of a date in such a month, and (iii)
are paid during the following January, will be treated by shareholders as if
received on December 31 of the calendar year in which declared.
The Fund has adopted a Dividend Reinvestment and Cash Purchase Plan.
Shareholders are deemed to have elected to participate in the Plan unless the
Plan Agent is otherwise instructed in writing. Participants in the Plan will
receive dividend and capital gain distributions in shares of the Fund, rather
than in cash, if the Fund's Board of Directors declares that payment may be
made in shares of the Fund or in cash. The Fund contemplates that
distributions will ordinarily be payable in shares or cash. See "Dividends
and Distributions; Dividend Reinvestment and Cash Purchase Plan."
Shareholders reinvesting distributions in additional shares through
participation in the Plan should be treated for U.S. Federal income tax
purposes as receiving a distribution in an amount equal to the fair market
value, determined as of the distribution date, of the shares received (whether
the fair market value is less than or greater than the net asset value of the
shares on the distribution date), and should have a cost basis in such shares
equal to such fair market value.
The Fund expects to be eligible to elect, and will notify
shareholders if it so elects, to "pass-through" to the Fund's shareholders the
amount of Brazilian withholding taxes imposed on dividends and interest. If
the Fund makes such an election, shareholders will be required to include in
income their proportionate shares of such amount. U.S. shareholders may be
entitled to claim a credit or deduction for all or a portion of such amount.
However, non-U.S. shareholders may not be able to claim a credit or deduction
with respect to such amounts.
The Fund may be required to withhold for U.S. Federal income tax
purposes 31% of all distributions payable to shareholders (not otherwise
exempt for such withholding) who fail to provide the
53
<PAGE>
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding.
BRAZILIAN TAXATION
The Fund will be subject to Brazilian withholding taxes on interest (at a
rate of 10%) and dividends (at rate of 15%). The Fund's capital gains from
the sale of securities are currently exempt from Brazilian taxes. However,
the Brazilian Government introduced a bill that would subject such gains to
Brazilian capital gains tax. See "Taxation -- Brazilian Taxes" in the SAI.
COMMON STOCK
The authorized capital stock of the Fund is 50,000,000 shares of Common
Stock ($.01 par value), of which __________ shares were issued and outstanding
as of ____________, 1995. Shares of the Fund, when issued, are fully paid and
nonassessable. All shares are equal as to earnings, assets and voting
privileges. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Fund's assets after debts and expenses. There are no
cumulative voting rights for the election of directors.
The Fund has no present intention of offering additional shares beyond
the Offer contemplated by this Prospectus, except that additional shares may
be issued under the Dividend Reinvestment and Cash Purchase Plan. See
"Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan."
Other offerings of its shares, if made, will require approval of the Fund's
Board of Directors and of the Brazilian Securities Commission. Any additional
offering will be subject to the requirements of the 1940 Act that shares may
not be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering
to existing shareholders or with the consent of a majority of the Fund's
outstanding shares.
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or
to modify its structure. The Board of Directors is divided into three
classes. At the annual meeting of stockholders in each year, the term of one
class expires and directors will be elected so serve in that class for terms
of three years. This provision could delay for up to two years the
replacement of a majority of the Board of Directors. A director may be
removed from office only by a vote of the holders of at least 75% of the
shares of the Fund entitled to be voted on the matter.
As noted above under "Net Asset Value" the conversion of the Fund from a
closed-end to an open-end investment company is currently not permitted under
Brazilian law. If it were permitted, such conversion would require the
affirmative vote of 75% of the directors to authorize such conversion. The
conversion also requires the affirmative vote or consent of the holders of 75%
of the shares of the Fund unless it is approved by a vote of 75% of the
Continuing Directors, in which event such conversion requires the approval of
the holders of a majority of the outstanding shares of the Fund. Even if the
Fund were to be converted into an open-end investment company, it could be
restricted in its ability to redeem its shares (otherwise than in kind)
because of Brazilian restrictions on repatriation of the Fund's capital. See
"Foreign Investment and Exchange Controls in Brazil."
54
<PAGE>
The affirmative votes of 75% of the directors and the holders of 75% of
the shares of the Fund are required to authorize any of the following
transactions:
(i) merger or consolidation of the Fund with or into any other
corporation;
(ii) issuance or transfer of any securities of the Fund to any person
or entity for cash, securities or other property (or combination thereof)
having an aggregate fair market value of $1,000,000 or more excluding sales of
securities in connection with a public offering and securities issued pursuant
to a dividend reinvestment plan adopted by the Fund or upon the exercise of
any stock subscription rights distributed by the Fund;
(iii) sale, lease, exchange or other disposition to or with any
entity or person of any assets of the Fund having an aggregate fair market
value of $1,000,000 or more except for portfolio transactions effected by the
Fund in the ordinary course of its business.
However, this shareholder vote or consent will not be required with
respect to the foregoing transactions if they are approved by a vote of 75% of
the Continuing Directors or if certain conditions regarding the consideration
paid by such corporation, person or entity are satisfied.
Reference is made to the Articles of Incorporation and By-Laws of the
Fund, on file with the Commission, for the full text of these provisions. See
"Further Information." These provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. The Board of
Directors has determined that the foregoing voting requirements, which are
generally greater than the minimum requirements under Maryland law and the
1940 Act, are in the best interests of shareholders generally.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts 02110, is the Fund's dividend paying agent and is the transfer
agent and registrar for the Fund's Common Stock.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, is Custodian for the Fund. The Fund's portfolio securities, when
invested in Real-denominated securities, and cash and cash equivalents, when
held in Brazil, are held at the Rio de Janeiro and Sao Paulo branches of The
First National Bank of Boston, acting as Subcustodian.
OFFICIAL DOCUMENTS
All of the documents, except Brazilian company annual reports,
referred to herein as the source of statistical information are public
official documents of the Federative Republic of Brazil, its Ministries, the
Central Bank of Brazil, the Brazilian Securities Commission or the Stock
Exchanges.
EXPERTS
The financial statements of the Fund included in the SAI have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm, as experts in auditing and
accounting.
55
<PAGE>
VALIDITY OF THE SHARES
The validity of the shares offered hereby will be passed on for the
Fund by Debevoise & Plimpton, New York, New York, and for the Dealer Manager
by Sullivan & Cromwell, New York, New York, with respect to matters of United
States law. Matters of Brazilian law will be passed on for the Fund and for
the Dealer Manager by Pinheiro Neto, Sao Paulo, Brazil.
FURTHER INFORMATION
Further information concerning the Fund and the Fund's Common Stock
may be found in the Registration Statement of which this Prospectus
constitutes a part on file with the Securities and Exchange Commission.
56
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
----
Investment Restrictions ................................................ 2
Directors and Officers ................................................. 5
Net Asset Value ........................................................ 8
Taxation ............................................................... 9
Portfolio Transactions and Brokerage ................................... 16
Financial Statements.................................................... F-1
Report of Independent Accountants ...................................... F-2
Report of Independent Accountants ...................................... F-14
57
<PAGE>
ANNEX A
-------
THE FEDERATIVE REPUBLIC OF BRAZIL
THE INFORMATION IN THIS ANNEX HAS BEEN EXTRACTED FROM THE OFFERING CIRCULAR
OF THE FEDERATIVE REPUBLIC OF BRAZIL ("BRAZIL"), DATED JULY 20, 1995,
DISTRIBUTED IN CONNECTION WITH THE OFFERING OF BRAZIL'S DM1,000,000,000 9% NOTES
DUE 1997. THAT INFORMATION PRESENTS HISTORICAL DATA, THAT HAVE NOT BEEN
UPDATED, EXCEPT WHERE OTHERWISE NOTED. THIS ANNEX IS GENERAL AND SUMMARY IN
NATURE AND IS PROVIDED FOR ILLUSTRATIVE PRUPOSES ONLY. IT DOES NOT PURPORT TO
BE AN AUTHORITATIVE POLITICAL OR ECONOMIC ANALYSIS. FURTHERMORE, BRAZIL'S
MACROECONOMIC INDICATORS ARE NOT REVIEWED BY THE INTERNATIONAL MONETARY FUND.
THE GOVERNMENT OF BRAZIL AND THE CENTRAL BANK OF BRAZIL ARE THE SOLE PROVIDERS
OF AUTHORITATIVE MACROECONOMIC INDICATORS. BRAZIL'S MACROECONOMIC INDICATORS
ARE NOT RELEASED WITH THE SAME TIMELINESS AND COMPLETENESS AS MANY OTHER
COUNTRIES. NONE OF THE MANAGER, THE BRAZILIAN ADVISER, THE BRAZILIAN
ADMINISTRATOR OR THE DEALER MANAGER HAS VERIFIED THE INFORMATION NOR MAKES ANY
REPRESENTATION AS TO ITS ACCURACY.
GENERAL INFORMATION
General. Brazil, the fifth largest country in the world, occupies nearly
half the land area of South America and shares a border with every country in
South America except Chile and Ecuador. The official language is Portuguese.
Brazil's population, estimated at December 31, 1994 to be 153.7 million, is the
sixth largest in the world and, growing at a rate of 1.4% per year, is expected
to reach 163 million by the end of the century. The largest cities in Brazil
are Sao Paulo and Rio de Janeiro, with populations of 9.8 million and 5.5
million, respectively.
Politics and Governmental Organization. From 1964 to 1985, Brazil was
governed by military governments. Brazil's current Constitution was adopted in
October 1988. In December 1989 the country elected a President in the first
direct presidential election since 1960. The Constitution also provided for a
plebiscite in April 1993 in which voters were permitted to consider alternative
systems of government, including a return to monarchy; in that plebiscite, the
Brazilian electorate voted overwhelmingly to maintain the presidential system of
government.
Brazil is a federative republic with broad powers granted to the federal
Government, which is made up of three independent branches: an executive branch
headed by the President; a legislative branch consisting of the bicameral
National Congress; and a judicial branch consisting of the Federal Supreme Court
and lower federal and state courts. The President is elected by direct vote to
serve a four-year term. He cannot be re-elected. The President's powers
include the right to appoint ministers and key executives in selected
administrative and political posts. The President may issue provisional
measures (medidas provisorias) that can be enforced for a maximum of 30 days;
they remain in force thereafter only if approved by the legislature within such
30-day period. The prevailing legal view is that the President may re-issue
provisional measures not previously rejected by Congress. Under the
Constitution, certain legislation submitted by the President must be voted upon
by the Congress within 90 days.
The National Congress is composed of the Senate and the Chamber of
Deputies, both of which must approve any statute before it is enacted. The
Senate is composed of 81 senators, each elected for staggered eight-year terms,
and the Chamber of Deputies has 513 deputies, elected for concurrent four-year
terms. The number of Deputies is based on a proportional representation system
weighted in favor of the less populated states which, as the population
increases in the larger states, assures the smaller states an important role in
the Congress. Currently, twenty different political parties are represented in
the Senate and Chamber of Deputies. As of April 26, 1995 the most represented
party in the Congress, the Partido de Movimento Democratico Brasileiro (the
"PMDB"), held 22 seats the Senate and 105 in the Chamber of Deputies.
Brazil's current President, Fernando Henrique Cardoso, assumed office on
January 1, 1995 after winning the presidential election with 54.3% of the total
valid votes. President Cardoso's stated program is to provide continuity to the
stabilization program known as the Plano Real by attempting to implement the
structural reforms required to provide long-term fiscal stability and
sustainable economic growth. See "The Economy -- The Plano Real." As of April
26, 1995, President Cardoso's party, the Partido de Social Democracia Brasileira
(the "PSDB"), held 10 seats in the Senate and 64 in the Chamber of Deputies, and
was the third most represented party in the Congress. President Cardoso
represents a coalition of the PSDB and two other parties, neither of which is
the PMDB.
<PAGE>
Foreign Relations. Brazil maintains diplomatic and trade relations with
almost every nation in the world and is a member of the International Monetary
Fund (the "IMF"), the World Bank, the General Agreement on Tariffs and Trade
("GATT") and the World Trade Organization.
Regionally, Brazil participates in the Organization of American States (the
"OAS") and in several sub-regional organizations under the OAS. In March 1991,
Brazil, Argentina, Paraguay and Uruguay formally established the Mercado Comum
do Sul ("Mercosul"), a common market organization. See "Balance of Payments and
Foreign Trade -- Foreign Trade."
THE ECONOMY
Selected Economic Data. The following table sets forth selected economic
data relating to Brazil for the indicated periods:
<TABLE>
<CAPTION>
SELECTED BRAZILIAN ECONOMIC INDICATORS
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
THE ECONOMY
Gross Domestic Product :
(in bil. of 1994 Reais)................. R$ 329.9 R$ 330.7 R$ 328.2 R$ 341.7 R$ 361.1
(in bil. of Dollars)/(1)/............... U.S.$ 471.1 U.S.$ 436.8 U.S.$ 449.9 U.S.$ 484.9 U.S.$ 531.0
Real GDP Growth (decline)/(2)/.......... (4.4)% 0.2% (0.8)% 4.1% 5.7%
Population (mil.)....................... 144.7 147.1 149.4 151.6 153.7
GDP Per Capita (in U.S.$)/(3)/.......... U.S.$ 2,882 U.S.$ 2,970 U.S.$ 3,012 U.S.$ 3,199 U.S.$ 3,452
Unemployment Rate/(4)/.................. 4.28% 4.83% 5.76% 5.31% 5.06%
General Price Index-Domestic Supply (%
change)/(5)/........................... 1,476.6% 480.2% 1,158.0% 2,708.6% 909.6%
Exchange Rate Adjustment/(6)/........... 1,397.3% 528.5% 1,059.0% 2,532.5% 613.4%
Exports (in bil. of Dollars)/(7)/....... U.S.$ 31.4 U.S.$ 31.6 U.S.$ 35.8 U.S.$ 38.8 U.S.$ 43.6
Imports (in bil. of Dollars)/(7)/....... 20.7 21.0 20.6 25.7 33.2
Trade Balance (in bil. of Dollars)...... 10.7 10.8 15.2 13.1 10.4
Current Account......................... (3.8) (1.4) 6.1 (0.6) (1.5)
------- ----- ------- ------- -----
</TABLE>
(1) Converted to Dollars based on the weighted average exchange rate for each
year.
(2) Calculated based upon constant average 1994 Reais.
(3) Not adjusted for purchasing power parity.
(4) Average annual unemployment rate of the metropolitan regions of Belo
Horizonte, Porto Alegre, Recife, Rio de Janeiro, Salvador and Sao Paulo.
(5) The General Price Index--Domestic Supply ("GPI-DS") is one indicator of
inflation. While many inflation indicators are used in Brazil, the GPI-DS,
calculated by the Getulio Vargas Foundation, an independent research
organization, is one of the most widely utilized indices.
(6) Year on year percentage devaluation of the Real against the Dollar (sell
side).
(7) The preliminary export and import figures for 1993 available at December
31, 1994 that appear in this table are the figures that the Brazil
continues to use for the purposes of its balance of payments calculations.
However, the revised figures for 1993 show U.S.$38.6 billion and U.S.$25.5
billion, respectively.
Sources: Fundacao Instituto Brasileiro de Geografia e Estatistica (IBGE);
Getulio Vargas Foundation; Central Bank
Historical Background. From the late 1960's through 1982, Brazil pursued
an import-substitution, high-growth development strategy financed, in large
part, by heavy recourse to foreign borrowings. Foreign debt grew at an
accelerated pace partly in response to the oil shocks of the 1970s and, when
international interest rates rose sharply in 1979-80, the resulting
accumulated external debt became one of Brazil's most pressing problems in the
decade that followed. See "Public Debt." The debt crisis of the 1980s and
high inflation substantially depressed real growth in Brazil's gross domestic
product ("GDP"), which averaged 2.3% per year from 1981 to 1989. During this
period, the public sector's role in the economy also expanded markedly, with
many key economic sectors subject to Government monopoly or subsidized
participation, and significant structural distortions were introduced through
high tariffs and the creation of subsidies and tax credit incentives.
Significant increases in the money supply to finance a large and growing
fiscal deficit further fueled inflationary pressures and Brazil experienced
high and chronic inflation. See "The Economy --
A-2
<PAGE>
Prices." Also during this period, indexation of prices became widespread.
Various price indices were used, each with its own methodology, based on
different baskets of goods or services, such as salaries, rents, taxes and
financial instruments. The practice of widespread indexation in Brazil
diminished the distorting impact of inflation on relative prices but also
served to sustain and fuel inflationary expectations.
Efforts to address these problems during the late 1980's and early 1990's
were largely unsuccessful. High inflation and the recurrent threat of
hyperinflation during this period prompted the Government to pursue a series
of stabilization plans, but these plans were undermined by a variety of
factors, including political difficulty in implementing planned fiscal
adjustments and the slowness of institutional reforms. The practice of
inflation indexation in the economy, which made prices downwardly rigid, also
helped to undermine the stabilization measures. Moreover, these attempts at
stabilization relied on mechanisms, such as price and wage freezes and/or
unilateral modifications of the terms of financial contracts, that were not
supported by fiscal and monetary reform. A central problem during this period
was the public sector, which ran operational deficits averaging more than 5%
of GDP during the five-year period from 1985 to 1989, while monetary policy
was compromised by the short-term refinancing of public sector debt. In
addition, the 1988 Constitution reallocated public resources, in particular
tax revenues, from the federal Government to the States and municipalities
without a proportional shift of responsibilities to them, thereby further
constraining the effectiveness of federal government fiscal policy. The
ability of the federal Government to dismiss public sector employees was also
limited.
The Plano Real. In December 1993, the Government announced the Plano Real,
aimed at curtailing inflation and building a foundation for sustained economic
growth. President Cardoso, who was Finance Minister at the time, is
acknowledged as the architect of the Plano Real. The Plano Real has utilized
traditional monetary and fiscal means to decrease the money supply and dampen
domestic demand, as well as other initiatives designed to address persistent
deficits in the Government's accounts and backward-looking indexation.
In a fiscal adjustment proposal for 1994, the Government proposed spending
cuts and an increase in tax rates and collections intended to eliminate a
budget deficit originally projected at $22.0 billion. Key elements of the
proposal included (i) cuts in current expenditures and investment through the
-
transfer of some activities from the federal Government to the States and
municipalities, (ii) a prohibition on sales of public bonds by the Government,
--
except to refinance existing debt and for certain expenditures and investment,
(iii) new taxes, including a new levy on financial transactions, (iv) recovery
--- --
of mandatory Social Security Contributions ("COFINS"), due to judicial
acknowledgement that such contributions were permissible under the
Constitution, and (v) establishment of the Emergency Social Fund ("ESF"),
-
financed by reductions in constitutionally mandated transfers of federal
Government revenues to the States and municipalities, to provide financing of
social welfare spending by the federal Government. Pursuant to the
constitutional amendment that created the ESF, 20% of Government revenues
otherwise earmarked for specific purposes were released and deposited into the
ESF to ensure financing of social welfare spending by the federal Government
for 1994 and 1995. In adopting this constitutional amendment, however,
Congress did not modify the existing constitutional provisions requiring the
federal Government to share a significant portion of its revenues with States
and municipalities.
The government addressed the problem of indexation in March 1, 1994 by
establishing the Unidade Real de Valor (the Unit of Real Value, or "URV") as a
unit of account. [Whereas other financial indices used at the time were
generally adjusted for inflation on a monthly basis], the URV was adjusted
daily. The introduction of the URV was premised on the theory that a
reference unit
A-3
<PAGE>
with a nominal value corrected frequently and based on the best
available estimate of current inflation would express values more
realistically than traditional indexing methods.
On July 1, 1994, the Government introduced the Real as Brazil's currency.
At that time the Cruzeiro Real, then worth one URV, was replaced with the Real
at an exchange rate of CR$ 2,750 to R$1.00. All contracts denominated in URVs
were automatically converted into Reais at a conversion rate of one to one,
and the URV, together with the Cruzeiro Real, ceased to exist. At the same
time the Government and the Central Bank took a number of steps to control
monetary aggregates through the regulation of credit and the flow of capital
into Brazil. The maturity of consumer credit extended by financial
institutions was restricted to 90 days, reserve requirements were imposed or
increased on different transactions, and other credit restructuring measures
were adopted. Subsequently, in support of the Plano Real, the Government has
also implemented certain other fiscal measures, undertaken efforts to reduce
the public sector's involvement in the economy and implemented new exchange
rate policy that permits market participants (including the Central Bank) to
set exchange rates for the Real. See "Foreign Exchange" and "The Economy --
State-Controlled Enterprises."
The Plano Real has succeeded in lowering inflation from a monthly rate of
46.6% in June 1994 to 2.62% in June 1995. Average monthly inflation during
the first [nine] months of 1995 was [ ]%. See "The Economy -- Prices."
Meanwhile, real GDP rose 5.7% in 1994 and 10.5% in the first quarter of 1995.
The Real has experienced greater stability against foreign currencies than
have previous Brazilian currencies. Whereas prior Brazilian currencies tended
to be devalued in relation to the Dollar, the Real appreciated from parity
with the Dollar on its introduction to R$0.846/US$1.00 on December 1, 1994,
due largely to the fact that in Brazil real interest rates were significantly
higher than those outside Brazil. Following a series of adjustments intended
to control the flow of capital into Brazil, at August 29, 1995, the Real-
Dollar exchange rate was R$0.95/U.S.$1.00. See "Foreign Investment" and
"Foreign Exchange."
The continued success of the Plano Real depends on the ability of the
Government to maintain fiscal restraint and a tight monetary policy in the
face of both domestic and international economic pressures as well as on the
ability of the Government to implement longer-term structural reforms, such as
reform of the tax and social security systems, transfer of certain federal
spending responsibilities to State governments and privatization of major
enterprises, some of which reforms require constitutional amendments to be
implemented. See "The Economy -- State-Controlled Enterprises."
Gross Domestic Product. Brazil experienced significant rates of growth
during the period from 1968 to 1973; growth in real GDP during that period
averaged over 11% per year and is often referred to as Brazil's "economic
miracle." From 1974 to 1980, the real GDP growth rate declined, but still
averaged over 7% per year. The 1980's, by contrast, were a period of
generally high inflation, low growth and continuing large budget deficits, as
the external debt crisis gave rise to a set of significant economic problems
from which the country has yet to emerge fully. See "The Economy --
Historical Background."
Brazil's economic growth has fluctuated greatly in recent years. The
average real growth rate of GDP during the five-year period from 1990 to 1994
was 1.0%, but real GDP was negative in both 1990, when it declined 4.4%, and
1992, when it declined 0.8%. During 1993 and 1994, the Brazilian economy
recovered and real GDP grew by 4.1% and 5.7%, respectively. GDP grew by 10.5%
during the first quarter of 1995, compared to 4.8% during the first quarter in
1994 but has since slowed as restrictive Government policies have begun to
take hold.
A-4
<PAGE>
Prices. The following table sets forth two principal price indices for the
periods indicated.
<TABLE>
<CAPTION>
TABLE NO. [ ]
GENERAL PRICE INDEX DOMESTIC SUPPLY (GPI-DS)/(1)/
WHOLESALE PRICE INDEX DOMESTIC SUPPLY (WPI-DS)
GPI-DS WPI-DS
----------------------- ----------------------
Period Monthly Trailing Monthly Trailing
12 Months 12 Months
- ------------------ ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
1980 December. 110.24% 121.33%
1981 December. 95.19 94.30
1982 December. 99.72 97.72
1983 December. 211.00 234.04
1984 December. 223.81 230.30
1985 December. 235.11 225.74
1986 December. 65.03 62.56
1987 December. 415.83 407.19
1988 December. 1,037.56 1,050.00
1989 December. 1,782.90 1,748.79
1990 December. 1,476.56 1,449.52
1991 December. 480.18 471.67
1992 December. 1,157.95 1,154.18
1993 December. 2,708.55 2,639.27
1994 January.. 42.19 3,002.23/(2)/ 41.28 2,954.78/(2)/
February. 42.41 3,392.27 43.23 3,366.26
March.... 44.83 3,857.07 43.65 3,787.77
April.... 42.46 4,296.70 40.20 4,147.79
May...... 40.95 4,585.30 38.47 4,354.17
June..... 46.58 5,153.50 45.50 4,873.73
July..... 5.47 4,098.79 4.41 3,825.64
August... 3.34 3,149.44 4.40 2,973.65
September 1.55 2,308.72 1.79 2,179.48
October.. 2.55 1,727.88 2.71 1,633.90
November. 2.47 1,267.48 2.18 1,197.74
December. 0.57 909.61 0.17 857.81
1995 January.. 1.36 619.70 0.87 583.84
February. 1.15 411.18 0.58 380.20
March.... 1.81 259.35 1.08 237.89
April.... 2.30 158.05 1.99 145.81
May -0.4
June 2.8
July 2.2
August 1.3
- ----------
</TABLE>
(1) GPI-DS is an index based on a weighting of three other indices: WPI-DS
(60%), the Consumer Price Index ("CPI") (30%), and the National Civil
Construction Index ("NCCI") (10%).
(2) Annual figures for each month from January 1994 represent trailing 12-
month inflation rates.
Source: Getulio Vargas Foundation; and Central Bank
A-5
<PAGE>
Principal Sectors of the Economy.
The following tables show the composition of GDP by major sector and
growth of each sector for the years 1990-1994.
<TABLE>
<CAPTION>
COMPOSITION OF GDP BY SECTOR
1990 1991 1992 1993/(2)/ 1994/(2)/
<S> <C> <C> <C> <C> <C>
Agriculture........................................................................ 10.1% 10.5% 11.1% 11.3% 13.2%
Industry........................................................................... 37.0 35.9 34.9 34.7 34.7
Mining, Oil and Gas.............................................................. 1.6 1.6 1.6 1.6 n.a.
Manufacturing.................................................................... 25.5 24.4 23.2 22.6 n.a.
Construction..................................................................... 7.1 6.5 6.5 6.7 n.a.
Public Utilities................................................................. 2.8 3.4 3.6 3.8 n.a.
Services........................................................................... 52.9 53.6 54.0 54.0 52.1
Retail Services.................................................................. 7.1 7.0 6.8 6.9 n.a.
Transportation................................................................... 3.8 3.6 3.7 4.0 n.a.
Communications................................................................... 1.3 1.1 1.2 1.6 n.a.
Financial Services............................................................... 11.9 7.9 9.0 8.8 n.a.
Government....................................................................... 11.5 9.6 10.2 10.0 n.a.
Other Services................................................................... 17.3 24.4 23.1 22.7 n.a.
----- ----- ----- ------ ---------
Subtotal........................................................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ---------
Less Financial Intermediation /(1)/................................................ 14.0 8.5 9.8 10.1 7.1
Real GDP at Factor Cost............................................................ 86.4 88.3 88.2 87.4 n.a.
===== ===== ===== ======
</TABLE>
_________________________
(1) Interest received less interest paid. Financial intermediation therefore
represents the proportion of GDP attributable to gains from interest rate
differentials such as those that the Brazilian financial sector has
experienced in recent years. See "The Financial System - General."
(2) Preliminary.
Source: IBGE and Central Bank
A-6
<PAGE>
<TABLE>
<CAPTION>
REAL GROWTH (DECLINE) AT FACTOR COST BY SECTOR
1990 1991 1992 1993 1994
------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Real GDP................................................... (4.4)% 0.2% (0.8)% 4.1% 5.7%
Agriculture................................................ (3.7) 2.8 5.4 (1.2) 7.5
Industry................................................... (8.2) (1.8) (3.7) 6.8 7.0
Mining, Oil and Gas...................................... 2.7 0.9 0.8 0.6 4.7
Manufacturing............................................ (9.5) (2.4) (4.1) 7.9 7.9
Construction............................................. (9.8) (3.5) (6.6) 4.9 3.8
Public Utilities......................................... 1.8 4.3 1.6 3.7 2.3
Services................................................... (0.9) 1.4 0.0 3.5 4.0
Retail Services.......................................... (7.0) (0.8) (2.4) 7.0 3.9
Transportation........................................... (3.1) 2.5 2.4 3.4 3.7
Communications........................................... 9.0 19.6 5.7 10.7 13.1
Financial Services....................................... (3.1) (8.0) (4.6) (2.2) 2.8
Government............................................... 1.7 1.6 1.5 1.5 1.4
</TABLE>
_______________
Source: IBGE Foundation and Central Bank
A-7
<PAGE>
<TABLE>
<CAPTION>
The following table shows annual changes in industrial production for the years 1990-1994.
ANNUAL CHANGES IN INDUSTRIAL PRODUCTION (%)
1990 1991 1992 1993 1994
------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Mining............................................................................. 2.7% 0.9% 0.8% 0.6% 4.7%
Manufacturing Industry............................................................. (9.5) (2.4) (4.1) 7.9 7.9
By Segment
Nonmetallic Minerals............................................................... (11.0) 0.6 (7.7) 4.8 3.0
Metallurgy......................................................................... (12.6) (5.7) (0.6) 7.7 10.8
Machinery.......................................................................... (16.9) (10.3) (9.5) 17.4 21.3
Electronic and Communications Equipment............................................ (5.5) (6.6) (12.6) 14.9 18.9
Transportation Equipment........................................................... (15.9) (0.2) (2.2) 19.6 13.5
Wood............................................................................... -- -- (1.2) 6.7 (2.6)
Furniture.......................................................................... -- -- (11.6) 20.7 1.3
Paper and Cardboard................................................................ (6.3) 6.7 (2.0) 4.8 2.7
Rubber............................................................................. (4.4) (1.2) (0.1) 8.5 3.9
Leather and Hides.................................................................. -- -- (3.1) 12.9 (4.6)
Chemicals.......................................................................... (8.1) (7.7) (0.5) 4.4 7.0
Parmaceutical Products............................................................. (9.7) (2.4) (11.2) 12.2 (2.9)
Perfumes, Soaps and Candles........................................................ (5.7) 7.0 (0.6) 4.4 2.4
Plastics........................................................................... (15.6) (0.2) (11.3) 7.6 4.1
Textiles........................................................................... (10.1) 2.8 (4.5) (0.5) 3.6
Clothing, Footwear and Cloth Goods................................................. (14.0) (13.2) (7.7) 8.8 (2.7)
Food Products...................................................................... 1.8 3.6 (7.4) 8.2 1.6
Beverages.......................................................................... 2.3 18.0 (16.7) 9.5 10.4
Tobacco............................................................................ (1.4) 7.3 17.7 4.4 (14.7)
Total Annual Change in Industrial Production........................................ (8.9) (2.6) (3.7) 7.4 7.6
By Category of Use
Capital Goods..................................................................... (15.5) (1.3) (6.9) 10.2 18.6
Intermediate Goods................................................................ (8.7) (2.2) (2.4) 5.5 6.5
Consumer Goods.................................................................... (5.3) 2.1 (5.4) 10.0 4.4
Durable......................................................................... (5.8) 4.7 (13.0) 27.7 15.5
Nondurable...................................................................... (5.2) 1.8 (3.8) 6.7 1.9
</TABLE>
_______________
Source: IBGE and Central Bank
State-Controlled Enterprises. The public sector grew very rapidly during
the 1970's and continues to play a significant role in Brazil's economy. The
Government, directly or through various state-owned enterprises, owns many
companies and controls a major portion of activities in many of the economy's
major sectors. Furthermore, the Constitution mandates a Government monopoly
in telecommunications, the pipeline distribution of gas, and the research and
exploration, refining, importation, exportation and transportation of
petroleum. The Constitution also restricts
A-8
<PAGE>
coastal and inland shipping to Brazilian vessels on which the captain and two-
thirds of the crew are Brazilian.
The following table sets forth selected information for the year ended
December 31, 1994 concerning the state-controlled companies that dominate four
key sectors in Brazil: Petrobras (the production, importation and refining,
but not the distribution of, petroleum), Eletrobras (electricity), Telebras
(telecommunications) and CVRD (mining).
<TABLE>
<CAPTION>
SELECTED STATE OWNED ENTERPRISES/(1)/
Direct and
Indirect
Ownership of
Government
--------------
Voting Total Total Net Foreign Gross Net
Assets Worth Debt Sales Income/(2)/
------ ------ ------- ------- ------- ------- ----------
(in millions of dollars, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Petrobras... 81.70% 65.98% $ 28,113 $18,855 $3,907 $25,478 $1,433
Eletrobras.. 86.00 79.97 100,187 64,806 9,080 6,201 1,856
Telebras.... 52.30 23.00 32,539 21,561 866 10,038 661
CVRD........ 53.39 53.39 13,037 9,707 532 3,858 648
----- ----- -------- ------- ------ ------- ------
</TABLE>
(1) Consolidated financial statements, including holdings and subsidiaries,
according to the methodology set forth in "Price and Accounting System"
(Instruction C.V.M. No. 191, dated July 15, 1992).
(2) Converted to U.S. Dollars using the annual average commercial exchange
rate (sell side). Shareholders as a group are entitled to a compulsory
dividend equal to at least 25.0% of adjusted net income for the year.
Source: Secretariat of Planning, Budget and Coordination ("Seplan")
Since 1991, the Government has privatized approximately 33 state-owned
enterprises for an aggregate purchase price of approximately US$8.6 billion.
The Cardoso administration has continued this policy and in addition has
advocated constitutional amendments to permit increased private sector
participation in the economy. Constitutional amendments require a three
fifths vote of each house of the Brazilian Congress in two separate rounds.
In August 1995, the Congress approved amendments opening the distribution of
gas to the private sector, allowing foreign-owned shipping in Brazilian rivers
and coastal waters and approving privatization of the telecommunications
sector. An amendment loosening the government monopoly in the petroleum sector
is currently before the Congress and in the midst of the approval process.
The Congress has also recently amended the Constitution to remove the
distinction between foreign and Brazilian-owned companies operating in Brazil,
which had restricted the foreign private sector's involvement in Brazil.
Under Brazilian law, private parties can only participate in activities
considered to be "public services" if they are so authorized by the federal
Government. In July 1995, Congress approved a new law creating concessions in
the following areas: (a) production, transmission and distribution of
-
electric power; (b) transportation; (c) sea, river and lake ports; (d) federal
- - -
highways, whether or not involving public works; (e) commercial use of federal
-
barriers, containment, dams, dike and irrigation
A-9
<PAGE>
works or services, whether or not involving public works; and (f) customs and
-
other terminal stations for public use, when not part of a port or airport,
and whether or not involving public works.
In addition to opening up ownership and concessions in public services to
private industry, the Government has sought to reduce the regulation of
economic activity generally. Important developments in this regard include the
establishment of a free foreign exchange market, trade liberalization and the
termination of most price controls. See "Balance of Payments and Foreign
Trade --Foreign Trade" and "Foreign Exchange." The Government has also acted
to deregulate certain segments of the economy, including fuel and oil
derivatives, airlines, shipping and steel, and is considering introducing
measures designed to increase competition in areas such as steel, highway
maintenance and transportation, areas which were previously controlled, in
most cases, by government enterprises.
BALANCE OF PAYMENTS AND FOREIGN TRADE
Background. Since 1990, the Government's economic policies have
increased the importance of the external sector of the economy. Recent
reforms directly affecting the external sector include a reduction in import
tariffs, the negotiation of the Mercosul free trade agreement, the
liberalization of certain foreign exchange transactions and the liberalization
of foreign investment regulations. See "Foreign Exchange."
From 1989 through 1994, Brazil maintained a surplus in its balance of
payments. During the same period, the foreign reserves maintained by the
Central Bank increased approximately 301%, totalling $38.8 billion at December
31, 1994, which covered approximately 14 months of imports of goods, or 11
months of imports of goods and nonfactor services.
Since January 1994, the Government has implemented a series of measures
designed to control the amount of foreign reserves and inflow of private
capital. Initially, these measures included the introduction of an interest
rate equalization tax and other measures designed to limit the inflow of
private capital that was being attracted by high real interest rates in
Brazil. In October 1994, the Government took additional measures to control
the inflow of capital, including an increase in various investment taxes, the
imposition of a 15.0% reserve requirement on internal credits relating to
advances on foreign exchange contract operations and a reduction of the
maximum term for foreign exchange contracting prior to the shipment of goods.
The liquidity crisis in Mexico beginning at the end of December 1994 and
the subsequent deterioration of Brazil's current account led the Government to
reverse certain measures it had previously taken to limit capital inflows. In
January 1995, the Government reestablished the prior maximum term for foreign
exchange contracting prior to the shipment of most goods. The Government also
eliminated the 15.0% reserve requirement on internal credits relating to
advances on foreign exchange contract operations and reestablished the inflow
of foreign resources in the form of long-run advance export payments.
Furthermore, the minimum term for amortization of these transactions was
reduced.
Further steps to encourage capital inflows were taken in March 1995, when
the Government eased certain other restrictions on foreign lending and
investment, including the reduction of certain taxes and other measures. At
that time, the Government also devalued the Real. See "Foreign Exchange."
A-10
<PAGE>
Early in 1995, declines in foreign investment coupled with a current
account deficit contributed to a decrease in international reserves from
$38.8 billion at December 31, 1994 to $33.7 billion at March 31, 1995.
Balance of Payments. The following table sets forth information
regarding Brazil's balance of payments for each of the years indicated.
<TABLE>
<CAPTION>
BALANCE OF PAYMENTS/(1)/
1990 1991 1992 1993/(2)/ 1994/(2)/
------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
(in millions of Dollars)
Current Account...................... $ (3,782) $ (1,407) $ 6,143 $ (637) $ (1,451)
Trade Balance....................... 10,753 10,579 15,239 13,072 10,390
Exports/(3)/....................... 31,414 31,620 35,793 38,783 43,558
Imports/(3)/....................... 20,661 21,041 20,554 25,711 33,168
Services (net)...................... (15,369) (13,542) (11,339) (15,362) (14,437)
Interest........................... (9,748) (8,621) (7,253) (8,453) (6,397)
Other.............................. (5,621) (4,921) (4,086) (6,909) (8,040)
Unilateral Transfers/(4)/........... 834 1,556 2,243 1,653 2,596
Capital Account, Net................. 5,325 752 10,319 10,703 9,241
Direct Investments.................. 236 (42) 1,443 (372) 931
Portfolio Investments/(5)/.......... 512 3,808 14,466 12,952 54,187
Of which: IDU Bonds............... --- --- 7,100 --- ---
Of which: 1994 Restructuring...... --- --- --- --- 42,612
Other Medium- and Long-Term Capital. (5,107) (5,109) 6,637 (2,469) (41,913)
Of which: Refinancing............. 812 --- 11,583 1,190 (39,546)
Other Short-Term Capital............ 9,684 2,095 (12,227) 592 (3,964)
Of which: Arrears................. 9,959 5,621 (14,253) 1,133 (5,653)
Errors and Omissions................. (328) 876 (1,386) (862) (446)
-------- -------- -------- ---------- ----------
Surplus (Deficit).................... $ 1,215 $ 221 $ 15,076 $ 9,204 $ 7,344
Gold/(7)/.......................... (639) 966 (74) (233) (297)
SDRs/(7)/.......................... (10) (2) 12 (1) 2
IMF Position/(7)/.................. --- --- --- --- ---
Foreign Exchange/(7)/.............. 168 (595) (14,608) (8,475) (6,920)
Other Holdings/(7)/................ 7 --- --- --- ---
Use of IMF credits/(7)/............ (741) (590) (406) (495) (129)
Reserves/(7)/...................... [9,772 9,406 23,754 82,211 38,806A]
</TABLE>
_____________
(1) These figures were calculated in accordance with the methodology set forth
in the IMF Balance of Payments Manual, Fourth Edition.
(2) Preliminary.
(3) The preliminary export and import figures for 1993 available at December
31, 1994 that appear in this table, are the figures that the Government
continues to use for the purposes of its balance of payments calculations.
However, the revised figures for 1993 show $38,597 and $25,480,
respectively.
(4) Unilateral transfers consist of transactions without a quid pro quo, many
of which are gifts, and migrant transfers.
(5) Includes bonds, commercial paper and notes.
(6) Represents mainly arrears on interest payments due but not paid on certain
medium- and long-term bank indebtedness.
(7) Negative amounts in these accounts signify increases in the overall
balance of payments, and vice versa.
Source: Central Bank
Foreign Trade. In 1994, Brazil's overall trade flows totalled a record
$76.7 billion, representing an increase of 19.7% over 1993, and the country's
balance of trade registered a surplus of $10.4 billion in 1994, 20.8% lower
than the surplus of the previous year, as imports grew by 30%
A-11
<PAGE>
while exports grew by only 13%. The growth in imports during 1994 was
influenced by the partial recovery of the domestic economy, as well as the
reduction of tariffs and the elimination of non-tariff restrictions and other
factors.
In the first quarter of 1995, preliminary figures indicate a trade deficit,
with imports of $12.1 billion and exports of $9.7 billion.
Brazil has been lifting import restrictions gradually since 1990, when
quantitative restrictions on imports were abolished. Following a tariff
reduction program, the average duty and maximum tariff in 1989, 35.5% and
85.0%, respectively, were reduced to 14.2% and 40.0%, respectively, as of July
1, 1993. Average tariffs are also being reduced as a result of Brazil's
implementation of a schedule of preferences from its current tariffs
applicable to imports from Mercosul countries. In addition, Brazil is a
signatory of the Final Act of the GATT Uruguay Round, pursuant to which it has
committed to staged reductions in tariffs beginning in 1995 over five years
with respect to industrial products and over ten years with respect to
agricultural products.
The following table sets forth certain details regarding Brazil's foreign
trade for the years indicated:
<TABLE>
<CAPTION>
BRAZIL'S FOREIGN TRADE
(millions US$)
1990 1991 1992 1993 1994/(1)/
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Exports........ $31,414 $31,620 $35,793 $38,597 $ 43,558
Imports........ $20,661 $21,041 $20,554 $25,480 $ 33,168
Trade Balance.. 10,753 10,579 15,239 13,117 10,390
</TABLE>
Source: Central Bank
FOREIGN INVESTMENT
Foreign investment in Brazil has traditionally focused on direct
investment in the manufacturing sector. Beginning in 1991, foreign investment
increased substantially, surpassing the levels reached during the period from
1973 to 1982, before the debt crisis. Since January of 1994, the Government
has taken a variety of measures, including taxes and regulatory requirements,
to facilitate the conduct of monetary policy and to control the inflow of
private capital into Brazil. These measures and the Government's policy with
respect to foreign investment have shifted according to different economic
circumstances. See "Balance of Payments and Foreign Trade -- General."
A-12
<PAGE>
The following table sets forth information regarding foreign
investment in Brazil for each of the years indicated.
<TABLE>
<CAPTION>
FOREIGN INVESTMENT IN BRAZIL
Inflows Outflows Net Inflows
-------------------------------------------------------------------------------------------------
Portfolio/(1)/ Direct/(2)/ Total Portfolio/(1)/ Direct Total Portfolio Direct Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions of Dollars)
1990....... $ 824 $1,131 $ 1,955 $ 245 $230 $ 475 $ 579 $ 901 $ 1,480
1991....... 4,187 1,095 5,282 378 123 501 3,809 972 4,781
1992....... 9,960 1,749 11,709 2,594 169 2,763 7,366 1,580 8,946
1993....... 23,550 1,302 24,852 10,598 580 11,178 12,952 722 13,674
1994/(3)/.. 32,621 2,586 35,207 21,046 618 21,664 11,575 1,968 13,543
------- ------ ------- ------- ---- ------- ------- ------ -------
</TABLE>
(1) Includes bonds, commercial paper and notes, except those related to
external debt restructuring bonds.
(2) Includes reinvestment of earnings.
(3) Preliminary.
Source: Central Bank
FOREIGN EXCHANGE
The Brazilian foreign exchange system has been structured to enable the
Government, through the Central Bank, to regulate and control foreign exchange
transactions carried out in Brazil. There are currently two foreign exchange
markets in Brazil: the commercial exchange market, on which most trade and
financial transactions are carried out, and the floating exchange market
(known as the "tourism dollar" market). The exchange rate in each market is
established independently, resulting in different rates during some periods,
and all transactions carried out in either of these markets must be conducted
through banks (and other agents in the case of the tourism dollar market)
authorized and monitored by the Central Bank.
The commercial exchange rate fluctuates as a function of supply and demand
of market participants, including the Central Bank. The Central Bank may
intervene to stabilize the rate through purchases and sales of Reais. Under
Resolution 2,110 of the National Monetary Council, the Central Bank has an
obligation to sell Dollars in the foreign exchange market whenever the Real
reaches parity with the Dollar. In a concerted attempt to encourage fresh
capital inflows and reverse the deterioration in Brazil's current account, in
March 1995 the Central Bank announced a currency band system of foreign
exchange and set a Real-Dollar commercial exchange rate band of R$0.88 to
R$0.93 per Dollar. This rate represented a devaluation of the Real as
compared to the exchange rates of February 1995, when the Real fluctuated
between R$0.834 to R$0.852 per Dollar. See "Balance of Payments and Foreign
Investment -- General." The most recent commercial exchange rate band was set
in June of this year when the Central Bank announced that it would intervene
to prevent the commercial exchange rate from falling below R$0.91 per Dollar
or rising above R$0.99 per Dollar.
The tourism dollar market was established in December 1988 with the
objective of liberalizing certain transactions mainly related to travel,
unilateral transfers, certain services and gold operations. Banks buy and
sell currency in this market at freely negotiated rates. Since its creation,
the premium
A-13
<PAGE>
of the tourism dollar market to the commercial exchange market has declined.
After reaching values higher than 160.0% in 1989, the premium in relation to
the commercial exchange market rate at December 30, 1994 stood at 0.6%. In
October 1994, certain limitations on the acquisition of foreign currency in
connection with certain tourist and health care activities, education,
scientific and cultural operations, certain asset transfers, software
acquisitions and transactions involving credit cards were eliminated.
The following table sets forth average exchange rates recorded in the
commercial exchange market (sell side) on the last day of the periods
indicated, together with the appreciation of the Dollar relative to the Real
and the inflation rate as measured by the GPI-DS.
A-14
<PAGE>
TABLE NO. [ ]
EXCHANGE RATES, APPRECIATION OF US$ RELATIVE TO REAL AND INFLATION
<TABLE>
<CAPTION>
Reais per Pct. Appreciation Inflation
US$ at end of US$ Change in
of Period Relative to Real GPI-DS Index
---------- ------------------ -------------
<S> <C> <C> <C>
1990--December.. 0.000062 1450.0% 1476.6%
1991--December.. 0.000389 527.4% 480.2%
1992--December.. 0.004505 1058.1% 1158.0%
1993--December.. 0.118584 2532.3% 2708.6%
1994--December.. 0.848000 813.4% 909.6%
1994
January....... 0.166785 40.6% 42.2%
February...... 0.231800 39.0% 42.4%
March......... 0.332125 43.3% 44.8%
April......... 0.473556 42.6% 42.5%
May........... 0.681916 44.0% 41.0%
June.......... 1.000000 46.6% 46.6%
July.......... 0.940000 -6.0% 5.5%
August........ 0.889000 -5.4% 3.3%
September..... 0.853000 -4.0% 1.6%
October....... 0.846000 -0.8% 2.6%
November...... 0.845000 -0.1% 2.5%
December...... 0.846000 0.1% 0.6%
1995
January....... 0.842000 -0.5% 1.4%
February...... 0.852000 1.2% 1.2%
March......... 0.896000 5.2% 1.8%
April......... 0.913000 1.9% 2.3%
May........... 0.906000 -0.8% 0.4%
June.......... 0.922000 1.8% 2.8%
July.......... 0.936000 1.6% 2.2%
August p...... 0.945950 1.1% 1.3%
September p... 0.953100 0.8%
-------- ------
</TABLE>
(1) The average rate on the last day of month in the commercial exchange
market.
(2) An index of the Real exchange rate of a basket of fifteen currencies
weighted by the share of the total Brazilian exports to all fifteen
countries involved represented by Brazilian exports to each such country.
(December 1991 = 100).
Source: Central Bank International Monetary Fund, IFS, September 1995
Financial Times
PUBLIC DEBT
Public sector debt in Brazil, composed of the internal and external debt
of the federal Government, State and local governments and government-
controlled enterprises, amounted to approximately
A-15
<PAGE>
$251,988 billion as of December 31, 1994. The gross debt of State and local
governments constitutes a significant portion of Brazil's overall public
sector debt.
During the period from 1982 to April 1994, Brazil failed to make payments
on certain of its external indebtedness to commercial banks as originally
scheduled, and in February 1987 declared a moratorium on principal and
interest payments on external indebtedness to commercial banks. However, in
April 1994, Brazil concluded Brady Plan-type debt restructuring agreements
with its private sector debtors. Pursuant to the agreements, interest and
arrearages were capitalized, previously outstanding principal obligations were
reduced by about $4 billion, and the maturity profile of Brazil's public-
sector external debt was lengthened from an average of 6.1 years at December
31, 1993 to an average of 11.4 years at December 31, 1994.
The following table sets forth the consolidated gross and net external
debt of the public sector at December 31 for each of the years 1990 through
1994.
<TABLE>
<CAPTION>
PUBLIC SECTOR DEBT
1990 1991 1992 1993 1994
------- ------ ------- ------- -------
CONSOLIDATED GROSS PUBLIC SECTOR DEBT
<S> <C> <C> <C> <C> <C>
Federal Government and 86,592 73,042 94,379 97,103 144,582
Central Bank
State and Local Gov'ts 32,697 28,422 38,138 43,018 61,510
State Enterprises 70,616 68,875 64,192 63,611 45,917
Total 189,905 170,339 196,707 203,732 251,988
NET PUBLIC SECTOR EXTERNAL DEBT
Federal Government and 56,164 58,533 45,909 35,458 39,611
Central Bank
State and Local Gov'ts. 4,551 4,211 4,401 4,601 2,133
State Enterprises 30,490 30,884 25,510 25,328 11,898
Total 91,205 91,428 75,820 65,387 53,642
</TABLE>
Source: Central Bank.
A-16
<PAGE>
EXTERNAL DEBT OUTSTANDING
(US$ Millions)
1990 1991 1992 1993 1994
------ ------ ------- ------- -------
Medium and Long Term 94,912 94,393 106,049 109,318 115,237
Public
Private
Short Term 17,351 16,827 21,194 28,934 34,968
Interest Arrears 10,489 13,605 4,869 5,081 60
Total 122,752 124,826 131,912 143,333 150,265
Percent of GDP 26.1% 28.6% 29.3% 29.5% 28.3%
Sources: IIF and JPMorgan
A-17
<PAGE>
THE FINANCIAL SYSTEM
The Brazilian financial system is composed of (i) the Monetary Council,
-
which is the highest authority on monetary and financial policies in Brazil
and is in charge of the overall supervision of monetary, credit, budgetary,
fiscal and public debt policies, (ii) the Central Bank, which implements
--
policies set by the Monetary Council, (iii) (the Brazilian Securities
---
Commission, (iv) public sector financial institutions such as the Banco do
--
Brasil, Brazil's largest commercial bank (accounting for over 53% of the
Brazilian banking system's total demand deposits and 51% of total assets at
November 30, 1994), and the National Bank for Economic and Social Development
("BNDES"), a development bank that grants financing to the private sector and
implements the federal Government's privatization program, and (v) private
-
sector financial institutions.
Since the establishment of the Plano Real in July 1994, the Brazilian
banking system has come under considerable pressure. During the highly
inflationary years prior to that time, the financial sector profited from
financial gains derived from investing funds in high yielding, inflation-
adjusted Government instruments and from short-term financial intermediation.
Earnings and return on equity were fairly constant for private sector banks.
The performance of the public sector banks, however, has been less consistent,
reflecting the fact that, in addition to their normal commercial activities,
they also extend credit in accordance with government economic policy
objectives. Furthermore, the Plano Real and the associated high reserve
requirements on both deposits and loans, limitations on the provisions of
credit, tight money supply and high real interest rates have adversely
affected the operations of Brazilian banks. Banks are suffering high levels
of non-performing loans and are having to make provisions accordingly.
Commencing in August 1994, two large public banks, BANESPA and BANERJ,
required support coordinated by the Central Bank and in August 1995 Banco
Economico (a large private bank principally operating in Bahia State) failed
and is now under the administration of the Central Bank, as are other smaller
banks that have also failed.
A-18
<PAGE>
SAMPLE ONLY
SUBSCRIPTION CERTIFICATE NUMBER: ____________________
NUMBER OF RIGHTS: ____________________
CUSIP NO.: ____________________
APPENDIX B
[Form of Subscription Certificate]
THE BRAZIL FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set
forth in the upper right hand corner of this Form. The registered holder hereof
(the "Holder") is entitled to acquire one (1) share of the Common Stock of The
Brazil Fund, Inc. (the "Fund") for each ______ (_) Rights held.
To subscribe for shares of Common Stock, the Holder must present to
The First National Bank of Boston, 150 Royall Street, Mail Stop 45-01-19,
Canton, Massachusetts 02021 (the "Subscription Agent"), prior to 5:00 p.m., New
York City time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and payable to
the order of The Brazil Fund, Inc. for an amount equal to the number of Shares
subscribed for in the Primary Subscription (and, if such Holder is a Record Date
Shareholder electing to exercise the Over-Subscription Privilege, under the
Over-Subscription Privilege) multiplied by the Subscription Price; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate; and (ii) a money order
or check drawn on a bank located in the United States and payable to the order
of The Brazil Fund, Inc. for an amount equal to the number of Shares subscribed
for in the Primary Subscription (and, if such Holder is a Record Date
Shareholder electing to exercise the Over-Subscription Privilege, pursuant to
the Over- Subscription Privilege) multiplied by the Subscription Price (which
certificate and money order or check must then be delivered by the close of
business on the third Business Day after the Expiration Date (the "Protect
Period")).
If the Holder of this certificate is entitled to subscribe for
additional shares pursuant to the Over-Subscription Privilege, Part B of this
Subscription Certificate must be completed to indicate the maximum number of
Shares for which such privilege is being exercised.
No later than seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's
Shares are held by Cede & Co., the nominee for The Depository Trust Company, or
any other depository or nominee) (in each instance, a "Nominee Holder"), the
share certificates representing the Shares purchased pursuant to the Primary
Subscription and, if applicable, the Over-Subscription Privilege, along with a
letter explaining the allocation of Shares pursuant to the Over-Subscription
Privilege. Any excess payment to be refunded by the Fund to a Record Date
Shareholder who is not allocated the full amount of Shares subscribed for
pursuant to the Over-Subscription Privilege will be mailed by the Subscription
Agent. An Exercising Rights Holder will have no right to rescind or modify a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Notice of Guaranteed Delivery. Any
excess payment to be refunded by the Fund to a Rights Holder will be mailed by
the Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of
Shares subscribed for, the Fund and the Subscription Agent reserve the right to
(i) find other shareholders or Rights Holders for the subscribed and unpaid for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription and/or Over-Subscription Privilege; and/or
(iii) exercise any and all other rights and/or remedies to which it may be
entitled, including, without limitation, the right to set-off against payments
actually received by it with respect to such subscribed Shares.
This Subscription Certificate may be transferred, in the same manner
and with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
__________, 1995, relating to the Rights.
THE BRAZIL FUND, INC.
By: THE FIRST NATIONAL BANK OF BOSTON,
as Subscription Agent
By:
____________________________________
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
Any questions regarding this Subscription Certificate and the
Offer may be directed to the Information Agent, Georgeson & Company Inc.
toll free at (800) 223-2064 or collect at (212) 509-6240
B-1
<PAGE>
Expiration Date: __________, 1995
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
The First National Bank of Boston The First National Bank of Boston BancBoston Trust Co. of New York
P.O. Box 1889 150 Royall Street 55 Broadway - 3rd Floor
MS 45-01-19 Mail Stop 45-01-19 New York, NY 10006
Boston, MA 02105-1889 Canton, Massachusetts 02021
</TABLE>
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount
of Common Stock indicated as the total of A and B below upon the
terms and conditions specified in the Prospectus related hereto,
receipt of which is acknowledged.
TO SELL: If I have checked either the box on line C or the box on
line D, I authorize the sale of Rights by the Subscription Agent
according to the procedures described in the Prospectus. The check
for the proceeds of sale will be mailed to the address of record.
<TABLE>
<CAPTION>
Please check [X] below:
<S> <C>
[ ] A. Primary Subscription divided by .000 $ $
= ----------------- ---------------------- --------------------- -----------------
X = (Amount Requested)
(Rights exercised) (Full Shares of Common (Subscription Price)
Stock Requested)
[ ] B. Over-Subscription Privilege .000 $ $ (*)
---------------------- --------------------- -----------------
X = (Amount Requested)
(Full Shares of Common (Subscription Price)
Stock Requested)
Amount of Check or Money Order Enclosed (total of A + B) = $
------------
Make check payable to the order of "The Brazil Fund, Inc."
(*) The Over-Subscription Privilege can be exercised by Record Date Shareholders only, as described in the Prospectus.
</TABLE>
[ ] C. Sell any remaining unexercised Rights
[ ] D. Sell all of my Rights
[ ] E. The following Broker-Dealer is hereby designated as having been
instrumental in the exercise of the Rights:
[ ] Smith Barney Inc. Account # _____________
[ ] Other Firm: Account # _____________
Please provide your telephone number Day (_) ________
Evening (_) ________
Signature of Subscriber(s)/Seller(s)
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above)
For value received, _________ of the Rights represented by this Subscription
Certificate are assigned to
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
Signature(s) of Assignee(s) (Print Full Address
including postal Zip Code)
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended, subject to the standards and procedures adopted by the
issuer.
SIGNATURE GUARANTEED BY:
- ----------------------------
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
B-2
<PAGE>
For value received, _____________ of the Rights represented by this Subscription
Certificate are assigned to
[ ] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
B-3
<PAGE>
APPENDIX C
[Form of Notice of Guaranteed Delivery]
NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND
THE SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF
THE BRAZIL FUND, INC. SUBSCRIBED FOR
IN THE PRIMARY SUBSCRIPTION AND THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer -- Payment for Shares," this
form or one substantially equivalent hereto may be used as a means of effecting
subscription and payment for all Shares of The Brazil Fund, Inc. Common Stock
subscribed for in the Primary Subscription and the Over-Subscription Privilege.
Such form may be delivered by hand or sent by facsimile transmission, overnight
courier or mail to the Subscription Agent.
The Subscription Agent is:
The First National Bank of Boston
By Mail: By Facsimile:
The First National Bank of Boston (617) 575-2232
Shareholder Services Division (617) 575-2233
P.O. Box 1889, Mail Stop 45-01-19 Confirm by Telephone
Boston, Massachusetts 02105 (617) 575-2700
By Hand: By Overnight Courier:
BancBoston Trust Company The First National Bank of Boston
of New York Shareholder Services Division
55 Broadway, Third Floor Mail Stop 45-01-10
New York, New York 10006 150 Royall Street
Canton, Massachusetts 02021
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS
SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed Shares
and (ii) a properly completed and executed Subscription Certificate (which
certificate and full payment must then be delivered by the close of business on
the third business day after the expiration Date, as defined in the Prospectus)
to the Subscription Agent prior to 5:00 p.m., New York City time, on the
Expiration Date (________, 1995, unless extended). Failure to do so will result
in a forfeiture of the Rights.
C-1
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York City time) on the third Business Day after the
Expiration Date (________, 1995, unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Shares subscribed for in the Primary Subscription and pursuant to the
Over-Subscription Privilege, if applicable, as subscription for such Shares is
indicated herein or in the Subscription Certificate.
- ---------------------------------------------- -------------------------------
Number of Shares subscribed for in the Primary Number of Shares subscribed
Subscription for which you are guaranteeing for pursuant to the
delivery of Rights and payment Over-Subscription Privilege
for which you are
guaranteeing delivery of Rights
and payment
Number of Rights to be delivered: _______________________________
Total Subscription Price payment to be delivered:
$_____________________________
Method of Delivery [circle one] A. Through DTC
B. Direct to Corporation
Please note that if you are guaranteeing for Over-Subscription Shares, and are
a DTC participant, you must also execute and forward to The First National Bank
of Boston a Nominee Holder Over-Subscription Exercise Form.
- -------------------------------- -------------------------------------
Name of Firm Authorized Signature
- -------------------------------- -------------------------------------
Address Title
- -------------------------------- -------------------------------------
Zip Code (Type of Print)
- ----------------------------------------- -------------------------------------
Name of Registered Holder (If Applicable)
- -------------------------------- -------------------------------------
Telephone Number Date
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE FUND
WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE
COMMUNICATED BY YOU TO DTC.
PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE
A DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT
A NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM.
C-2
<PAGE>
APPENDIX D
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
THE BRAZIL FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
To: The First National Bank of Boston To: BancBoston Trust Company To: The First National Bank of Boston
Shareholder Services Division of New York Shareholder Services Division
P.O. Box 1889 55 Broadway, Third Floor Mail Stop 45-01-19
Mail Stop 45-01-19 New York, New York 10006 150 Royall Street
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-
SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY
SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF A
COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE
EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
------------------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED ___________, 1995 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE FUND.
-----------------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK CITY TIME, ON ____________, 1995, UNLESS EXTENDED BY THE FUND
(THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it has
either (i) exercised the Primary Subscription right in respect of Rights and
delivered such exercised Rights to the Subscription Agent by means of
transfer to the Depository Account of the Fund or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the
exercise of the Primary Subscription Right and will delivery the Rights
called for in such Notice of Guaranteed Delivery to the Subscription Agent
by means of transfer to such Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to
the Subscription Agent that such Over-Subscription Privilege is being
exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.(*)
3. The undersigned understands that payment of the Subscription Price of $_____
per Share for each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m., New York City time, on the Expiration Date and represents
that such payment, in the aggregate amount of $______ either (check
appropriate box):
[ ] has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above or
[ ] is being delivered to the Subscription Agent herewith or
[ ] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
[ ] uncertified check
[ ] certified check
[ ] bank draft
[ ] money order
- --------------------------------------------------- -------------------------
Depository Primary Subscription Confirmation Number Name of Nominee Holder
- --------------------------------------------------- -------------------------
Depository Participant Number Address
-------------------------
City State Zip Code
Contact Name___________________ By:______________________
Phone Number:__________________ Name:____________________
Title:___________________
Dated: ________, 1995
* PLEASE COMPLETE THE BENEFICIAL CERTIFICATION ON THE BACK HEREOF CONTAINING THE
RECORD DATE POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES
SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF APPLICABLE,
REQUESTED BY EACH SUCH OWNER.
D-1
<PAGE>
THE BRAZIL FUND, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of common Stock, $0.01 par value ("Common Stock"), of The
Brazil Fund, Inc. (the "Fund") pursuant to the Rights offering (the "Offer")
described and provided for in the Fund's Prospectus dated __________, 1995 (the
"Prospectus") hereby certifies to the Fund and to The First National Bank of
Boston as Subscription Agent for such Offer, that for each numbered line filled
in below the undersigned has exercised, on behalf of the beneficial owner
thereof (which may be the undersigned), the number of Rights specified on such
line in the Primary Subscription (as defined in the Prospectus) and such
beneficial owner wishes to subscribe for the purchase of additional shares of
Common Stock pursuant to the Over-Subscription Privilege (as defined in the
Prospectus), in the amount set forth in the third column of such line:
<TABLE>
<CAPTION>
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED
IN THE PRIMARY PURSUANT TO THE
RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
<C> <S> <C> <C>
1) ------------------ ------------------------- --------------------------
2) ------------------ ------------------------- --------------------------
3) ------------------ ------------------------- --------------------------
4) ------------------ ------------------------- --------------------------
5) ------------------ ------------------------- --------------------------
6) ------------------ ------------------------- --------------------------
7) ------------------ ------------------------- --------------------------
8) ------------------ ------------------------- --------------------------
9) ------------------ ------------------------- --------------------------
10) ------------------ ------------------------- --------------------------
</TABLE>
- -------------------------------- --------------------------------------
Name of Nominee Holder Depository Participant Number
- -------------------------------- --------------------------------------
Name: Depository Primary Subscription
Confirmation Number(s)
Title:
Dated: ____________, 1995
D-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer contained herein and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund, the Manager or the Dealer Manager. This Prospectus does not
constitute an offer or a solicitation by anyone in any jurisdiction in which the
person making such offer or solicitation in not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION .............................................. 2
EXPENSE INFORMATION ................................................ 4
PROSPECTUS SUMMARY ................................................. 5
FINANCIAL HIGHLIGHTS ............................................... 10
MARKET AND NET ASSET VALUE INFORMATION ............................. 11
THE FUND .......................................................... 11
THE OFFER .......................................................... 12
USE OF PROCEEDS .................................................... 20
INVESTMENT OBJECTIVE AND POLICIES .................................. 21
CERTAIN INVESTMENT PRACTICES ....................................... 22
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL ................. 24
RISK FACTORS AND SPECIAL CONSIDERATIONS ............................ 26
THE BRAZILIAN SECURITIES MARKETS ................................... 31
INVESTMENT ADVISERS AND ADMINISTRATOR .............................. 42
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN ................................................ 48
TAXATION ........................................................... 50
COMMON STOCK ....................................................... 50
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR ................ 51
CUSTODIAN .......................................................... 51
OFFICIAL DOCUMENTS ................................................. 51
EXPERTS ............................................................ 51
VALIDITY OF THE SHARES ............................................. 51
FURTHER INFORMATION ................................................ 52
THE FEDERATIVE REPUBLIC OF BRAZIL .................................. A-1
FORM OF SUBSCRIPTION CERTIFICATE ................................... B-1
FORM OF NOTICE OF GUARANTEED DELIVERY .............................. C-1
FORM OF DTC PARTICIPANT OVERSUBSCRIPTION FORM ...................... D-1
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Fund since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BRAZIL FUND, INC.
_______ Shares of Common Stock
Issuable Upon Exercise of Rights to Subscribe for such
Shares
[LOGO]
--------------------
PROSPECTUS
--------------------
Smith Barney Inc.
_________, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE BRAZIL FUND, INC.
__________________________________
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus, dated ____________, 1995 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of the Fund and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's Information
Agent, Georgeson & Company Inc. at (800) 223-2064 or collect at (212) 509-6240.
This SAI incorporates by reference the entire Prospectus. Defined terms used
herein shall have the same meaning as provided in the Prospectus. The date of
this SAI is _________, 1995.
<TABLE>
<CAPTION>
-----------------
TABLE OF CONTENTS
<S> <C>
Page
----
Investment Restrictions....................................... 2
Directors and Officers........................................ 5
Net Asset Value............................................... 8
Taxation...................................................... 9
Portfolio Transactions and Brokerage.......................... 16
Financial Statements.......................................... F-1
Report of Independent Accountants............................. F-2
Report of Independent Accountants............................. F-14
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are the Fund's only fundamental policies -- that
is, policies which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. If a percentage
restriction on investment or use of assets set forth below is adhered to at the
time a transaction is effected, later changes in percentage resulting from
changing values will not be considered a violation.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may be
necessary for clearance of transactions and the maintenance of margin with
respect to futures and forward contracts.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from a bank for temporary or emergency purposes in amounts
not exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed), and may also pledge its assets to
secure such borrowings. For the purposes of this investment restriction,
collateral arrangements with respect to the writing of options or the purchase
or sale of futures contracts are not deemed a pledge of assets or the issuance
of a senior security.
4. Purchase any security if, as a result, more than 25% of the Fund's total
assets (taken at current value) would be invested in a single industry. The
exercise of stock subscription rights or conversion rights is not deemed to be a
purchase for purposes of this restriction.
5. Buy or sell commodities or commodity contracts or real estate or interests
in real estate, although it may purchase and sell securities that are secured by
real estate or commodities and securities of companies that invest or deal in
real estate or commodities and may purchase and sell futures and forward
contracts on stock indices, foreign currencies and precious metals, to the
extent permitted under applicable law.
6. Make loans, provided that the Fund may enter into repurchase agreements
(repurchase agreements with a maturity of longer than seven days together with
securities that are not readily marketable being limited to 15% of the Fund's
total assets). Brazilian law currently precludes the Fund from entering into
repurchase agreements, as well as lending portfolio securities unless expressly
authorized by the Brazilian Securities Commission or by the Central Bank, in
their respective spheres of authority. Should the Fund receive such approval
from the Central Bank, the Fund may lend portfolio securities, in an amount not
to exceed 25% of the Fund's total assets and to the extent permitted under
applicable Brazilian law.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
applicable law.
The following additional restrictions are not fundamental policies of the Fund
and may be changed by the Board of Directors.
The Fund may not:
8. Purchase any security (other than obligations of the U.S. government, its
agencies or instrumentalities or of the Government, its agencies or
instrumentalities) if as a result more than 10% of the Fund's total assets
(taken at value) would then be invested in securities of a single issuer. The
2
<PAGE>
exercise of stock subscription rights or conversion rights is not deemed to be a
purchase for purposes of this restriction.
9. Make investments for the purpose of exercising control or management.
10. Participate on a joint and several basis in any trading account in
securities.
As noted above, in addition to the foregoing restrictions, the Fund is subject
to the Regulations and to the Code with respect to its Portfolio. See "Taxation
- -- United States Federal Income Taxes -- General." The investment restrictions
imposed by the Regulations are implemented and interpreted, and may be
supplemented, by the Brazilian Securities Commission and may be amended by the
Monetary Council.
The Regulations require that an average at least 70% of the total investments
in the Portfolio consist of shares of common and preferred stocks issued by
publicly held companies and traded in the Brazilian securities markets. Such
securities may only be acquired on one of the Stock Exchanges or by subscription
or in an over-the-counter market organized by an entity accredited by the
Brazilian Securities Commission. As no entities have yet been so accredited,
the Fund is not currently permitted to invest in Brazil's over-the-counter
market. The Fund is subject not only to the investment requirements in the
Regulations, but also to the Fund's own policy normally to invest at least 70%
of its total assets in common and preferred stocks of companies registered with
the Brazilian Securities Commission and listed on the Stock Exchanges or traded
in the over-the-counter market. See "Investment Objective and Policies" in the
Prospectus.
Subscriptions include the acquisition by the Fund of newly issued shares
acquired through private or public offerings as long as such shares are
registered with the Brazilian Securities Commission for public trading in
Brazil. In addition, the Fund may acquire such shares offered in a secondary
public offering, even if such a transaction is not effected through a Stock
Exchange.
The balance of the Portfolio, on average no more than 30%, may be invested in
(a) other securities issued by Brazilian publicly held companies (acquisition
-
of fixed-income securities is prohibited), (b) Agrarian Debt Notes, National
-
Development Fund Obligations, and debentures issued by Siderurgia Brasileira
S.A., and (c) other investment mechanisms expressly authorized by the Central
-
Bank and the Brazilian Securities Commission jointly, as is the case of margin
account transactions. At present, the Fund is not allowed to invest in the debt
securities of the Government and of the Central Bank; however, if permitted to
do so in the future, such debt securities would include Treasury Bonds, Treasury
Bills, Central Bank Bonds and Central Bank Bills, described in "The Brazilian
Securities Market -- The Secondary Markets -- Debt Securities Market." Treasury
Bonds and Bills are direct obligations of the Government, and Central Bank Bonds
and Bills are direct obligations of the Central Bank and are backed by the full
faith and credit of the Government.
The requirement of the Regulations that 70% of the Portfolio consist of common
and preferred stocks is tested [daily?] against average portfolio positions for
the preceding 720 days. If the Portfolio fails to satisfy the 70% requirement
as of a given date, the requirement will nevertheless be satisfied as of that
date if, within the following 360 days, the test (measured against average
portfolio positions for the preceding 720 days) would be satisfied. On any day,
such equity investments must make up at least 35% of the value of the Portfolio.
The Fund has requested confirmation from the Brazilian Securities Commission
confirming that the Fund will have one year from the date of completion of the
Offer to adapt its portfolio to meet these requirements.
Other investment restrictions imposed by the Regulations do not permit the
Fund with respect to its Portfolio to: (a) act as surety, guarantor or co-
-
obligor in any way, or make loans of any kind
3
<PAGE>
[(other than the lending of portfolio securities, which is permitted with the
authorization of the Brazilian Securities Commission or the Central Bank, in
their respective spheres of authority; (b) purchase or sell securities other
-
than those authorized by the Monetary Council (namely, shares and other
securities issued by publicly held companies that are traded in the Brazilian
securities market (with the exception fixed-income securities); (c) make
-
investments abroad, except that, prior to the entry in Brazil of the proceeds of
any offering of Common Stock, Fund assets may be invested in United States
Government securities and money market instruments; or (d) subscribe for or
-
otherwise acquire shares of investment companies or investment funds. The
Regulations permit the Fund to acquire bonds or securities issued or co-
guaranteed by the Brazilian Administrator or an affiliate thereof only with the
approval of all of the Fund's shareholders.
The Regulations also empower the Brazilian Securities Commission to cancel the
authorization of the Brazilian Administrator if it fails to comply with
applicable law and regulations, and to approve its successor. See "Investment
Advisers and Administrator." In addition, the Fund is required to file with the
Brazilian Securities Commission specified reports, including period-end reports
as to the Fund's portfolio holdings and equity transactions.
Should any investment restriction imposed by the Regulations or other
Brazilian legal requirements, or by the Code, be removed or liberalized, the
Fund reserves the right to invest accordingly, without shareholder approval,
except to the extent that such investment conflicts with the Fund's investment
objective or the Investment Restrictions contained in paragraphs 1-7 above.
Other restrictions on the Fund may be imposed by general foreign investment
and exchange controls in effect in Brazil. See "Foreign Investment and Exchange
Controls in Brazil" in the Prospectus.
4
<PAGE>
DIRECTORS AND OFFICERS
The names of the individuals who serve as directors and officers of the Fund
are set forth below, together with their positions and their principal
occupations during at least the past five years and, in the case of the
directors, their ages and their positions with certain other international
organizations and publicly-held companies. The Board of Directors is divided
into three classes, each director serving for a term of three years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE AND CLASS POSITION(S) WITH REGISTRANT DURING PAST FIVE YEARS
---------------------------- --------------------------- ----------------------
<S> <C> <C>
Juris Padegs/(1)//(1)/............. Chairman of the Board and Director Managing Director of Scudder, Stevens &
Age 63............................. Clark, Inc.; serves on the boards of an
Class of 1998...................... additional 27 funds managed by Scudder,
Stevens & Clark, Inc.
Ronaldo A. da Frota Nogueira....... Director and Resident Brazilian Director and Chief Executive Officer,
IMF Editora Ltda.................. Director IMF Editora Ltda. (financial publisher);
Av. Erasmo Braga 227 Grupo 404..... serves on the boards of an additional three
20020-000 Rio de Janeiro,.......... funds managed by Scudder, Stevens &
RJ, Brazil........................ Clark, Inc.
Age 57
Class of 1998
Dr. Wilson Nolen................... Director Consultant (1989-present); Director,
1120 Fifth Avenue.................. Ecohealth, Inc. (biotechnology company);
New York, NY 10128................. serves on the boards of an additional 14
Age 68............................. funds managed by Scudder, Stevens &
Class of 1997...................... Clark, Inc.
Edmond D. Villani*(1).............. Director President and Managing Director of
Age 48............................. Scudder, Stevens & Clark, Inc.; serves on
Class of 1997...................... the boards of an additional 15 funds
managed by Scudder, Stevens & Clark,
Inc.
Edgar R. Fiedler................... Director Vice President and Economic Counselor,
845 Third Avenue................... The Conference Board, Inc.; Director,
New York, NY 10022................. The Stanley Works (manufacturer of tools
Age 66............................. and hardware) and Zurich American
Class of 1996...................... Insurance Company; serves on the boards
of an additional five funds managed by
Scudder, Stevens & Clark, Inc.
Nicholas Bratt*(1)................. President and Director Managing Director of Scudder, Stevens &
Age 47............................. Clark, Inc.; serves on the boards of an
Class of 1996...................... additional 13 funds managed by Scudder,
Stevens & Clark, Inc.
Roberto Teixeira da Costa.......... Director and Resident Brazilian President, Brasilpar Consultaria
Brasilar Consultoria Financeira e.. Director Financeira e Servicos Ltda. (financial
Servicos Ltda. consulting and asset management);
Alameda Santos, 1357-2 andar Chairman, CEAL (Latin American
01470-900 Sao Paulo, SP, Brazil Businessmen Council); Director of seven
Age 60 Brazilian listed and unlisted companies.
Class of 1996
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
_____________________
/1/ Directors considered by the Fund and its Counsel to be persons who are
"interested persons," as defined in the 1940 Act, of the Fund, the Manager or
the Brazilian Adviser.
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE AND CLASS POSITION(S) WITH REGISTRANT DURING PAST FIVE YEARS
---------------------------- --------------------------- ----------------------
<S> <C> <C>
Jerard K. Hartman(1)............... Vice President Managing Director of Scudder, Stevens &
Clark, Inc.
David S. Lee(2).................... Vice President Managing Director of Scudder, Stevens &
Clark, Inc.
Pamela A. McGrath(2)............... Treasurer Principal of Scudder, Stevens & Clark,
Inc.
Kathryn L. Quirk(1)................ Vice President and Assistant Secretary Managing Director of Scudder, Stevens &
Clark, Inc.
Edward J. O'Connell(1)............. Treasurer Principal of Scudder, Stevens & Clark,
Inc.
Thomas F. McDonough(2)............. Secretary Principal of Scudder, Stevens & Clark,
Inc.
Coleen Downs Dinneen(2)............ Assistant Secretary Vice President of Scudder, Stevens &
Clark, Inc.
</TABLE>
- ----------
(1) Address: 345 Park Avenue, New York, NY 10154
(2) Address: Two International Place, Boston, MA 02110
The amount of shares in the Fund owned by the Fund's directors and officers
as a group is less than one percent of the Fund's outstanding stock.
The Fund's Board of Directors has an Executive Committee which may exercise
the powers of the Board to conduct the current and ordinary business of the Fund
while the Board is not in session. Currently, Messrs. Bratt and Padegs are
members of the Executive Committee.
Scudder is a Delaware corporation. Daniel Pierce, Two International Place,
Boston, Massachusetts, is the Chairman of the Board of Scudder. Edmond D.
Villani, 345 Park Avenue, New York, New York, is the President of Scudder.
Stephen R. Beckwith, 345 Park Avenue, New York, New York, Lynn S. Birdsong, 345
Park Avenue, New York, New York, Nicholas Bratt, 345 Park Avenue, New York, New
York, Linda C. Coughlin, 345 Park Avenue, New York, New York, Margaret D.
Hadzima, Two International Place, Boston, Massachusetts, Jerard K. Hartman, 345
Park Avenue, New York, New York, Richard A. Holt, Two Prudential Plaza, 180
North Stetson, Suite 5400, Chicago, Illinois, Dudley H. Ladd, Two International
Place, Boston, Massachusetts, Douglas M. Loudon, 345 Park Avenue, New York, New
York, John T. Packard, 101 California Street, San Francisco, California, Juris
Padegs, 345 Park Avenue, New York, New York, and Cornelia M. Small, 345 Park
Avenue, New York, New York, are the other members of the Board of Directors of
Scudder. The principal occupation of each of the above named individuals is
serving as a Managing Director of Scudder.
All the outstanding voting and nonvoting securities of the Manager are held
of record by Stephen R. Beckwith, Juris Padegs, Daniel Pierce and Edmond D.
Villani as representatives of the beneficial owners of such securities pursuant
to a Security Holders Agreement, under which such representatives have the right
to reallocate shares among the beneficial owners from time to time, at net book
value in cash transactions. All Managing Directors of the Manager own voting
and nonvoting stock; all Principals own nonvoting stock.
6
<PAGE>
The officers of the Fund will conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions set
forth under "Investment Advisers and Administrator," will review such actions
and decide on general policy.
The Fund pays each of its directors who is not an affiliated person of the
Manager or the Brazilian Adviser, in addition to certain out-of-pocket expenses,
an annual fee of $6,000 (except for Messrs. Nogueira and da Costa, who as
Resident Brazilian Directors receive an annual fee of $12,000), plus $750 for
each Board of Directors meeting, and $250 for each committee meeting attended
(other than audit committee meetings, for which such directors receive a fee of
$750). For the fiscal year ended December 31, 1994, the aggregate amount for
fees and expenses paid to such directors amounted to $84,504. For the six
months ended June 30, 1995, directors' fees and expenses amounted to $______.
The following Compensation Table provides, in tabular form, the following
data:
Column (1) All Directors who receive compensation from the Fund.
Column (2) Aggregate compensation received by a Director from the Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to
be paid by the Fund. The Fund does not pay such benefits to its Directors.
Column (5) Total compensation received by a Director from the Fund plus
compensation received from all funds managed by Scudder for which a Director
serves. The total number of funds from which a Director receives such
compensation is also provided in column (5). Generally, compensation received
by a Director for serving on the Board of a closed-end fund is greater than the
compensation received by a Director for serving on the Board of an open-end
fund.
<TABLE>
<CAPTION>
COMPENSATION TABLE
for the year ended December 31, 1994
- -----------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
ESTIMATED
PENSION OF ANNUAL TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS BENEFITS FROM THE FUND AND
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF UPON FUND COMPLEX PAID TO
POSITION FROM THE FUND FUND EXPENSES RETIREMENT DIRECTORS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Roberto Teixeira da Costa, $13,868 N/A N/A $ 13,868
Director (1 fund)
Edgar R. Fiedler, $11,373 N/A N/A $ 30,003*
Director (6 funds)
Ronaldo A. de Frota Nogueira, $16,497 N/A N/A $ 54,997
Director (4 funds)
Dr. Wilson Nolen, $11,373 N/A N/A $132,023
Director (15 funds)
</TABLE>
*As of December 31, 1994, Mr. Fiedler had a total of $183,603 accrued in a
deferred compensation program for serving on the Board of Scudder Institutional
Fund, Inc., which has four active portfolios, and $182,472 accrued in a deferred
compensation program for serving on the Board of Scudder Fund, Inc., which has
five active portfolios.
7
<PAGE>
Although the Fund is a Maryland corporation, certain of its directors and
officers are residents of Brazil, and substantially all of the assets of such
persons may be located outside of the United States. As a result, it may be
difficult for United States investors to effect service of process upon such
directors or officers within the United States or to realize judgments of courts
of the United States based upon civil liabilities of such directors or officers
under the federal securities laws and other laws of the United States. There is
substantial doubt as to the enforceability in Brazil of such civil remedies and
criminal penalties as are afforded by the federal securities laws in the United
States. No extradition treaty currently is in effect between the United States
and Brazil which would subject the Fund's directors and officers to enforcement
of the criminal penalties of the federal securities laws.
The By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund to the full extent permitted by law. However,
nothing in the Articles of Incorporation or the By-Laws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
To the best of the Fund's knowledge, as of ________, 1995 no person owned
beneficially more than 5% of the Fund's outstanding shares.
Lino Otto Bohn serves as Honorary Director of the Fund. Honorary Directors
are invited to attend all Board meetings and to participate in Board
discussions, but are not entitled to vote on any matter presented to the Board.
Mr. Bohn had served as Director of the Fund since 1988. Mr. Bohn retired as
Director in 1993 in accordance with the Board of Directors' retirement policy.
NET ASSET VALUE
The net asset value of shares of the Fund is determined no less frequently
than weekly, on the last business day of each month, and at such other times as
the Board of Directors may determine, by dividing the value of the total assets
of the Fund, less all liabilities, by the total number of shares of Common Stock
outstanding.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent
bid quotation. An equity security which is traded on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system is valued at its
most recent sale price. Lacking any sales, the security is valued at the high
or "inside" bid quotation. The value of an equity security not quoted on the
NASDAQ System, but traded in another over-the-counter market, is its most recent
sale price. Lacking any sales, the security is valued at the Calculated Mean.
Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board of Directors believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Manager may calculate the price of
that debt security taking into account such factors as the Manager deems
appropriate. This valuation
8
<PAGE>
method may not be used with respect to a particular security for longer than ten
consecutive trading days, or for securities with an aggregate value that exceeds
5% of the Fund's net assets on a particular valuation date.
An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded over-
the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing currency exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's valuation committee (the "Valuation
Committee"), the value of a portfolio asset as determined in accordance with
these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis of
all available information. The value of other portfolio holdings owned by the
Fund is determined in a manner which, in the discretion of the Valuation
committee, most fairly reflects fair market value of the property on the
valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets is calculated in terms of
Dollars by converting the Local Currency into Dollars at the prevailing currency
exchange rate on the valuation date.
Under the Fund's Articles of Incorporation, the Fund cannot become an open-
end investment company without the approval of holders of 75% of the outstanding
shares of the Fund (a majority of such shares, if the change is approved by
75% of the directors unaffiliated with an Interested Party (as defined in the
Fund's Articles of Incorporation) who have served on the Board of Directors for
a period of at least 12 months, or successors to such directors who similarly
are unaffiliated ("Continuing Directors")). Moreover, the Regulations
contemplate that a Managed Portfolio such as the Fund must be organized as a
closed-end investment company, not as an open-end investment company, and the
Fund is limited under Brazilian law in its ability to repatriate capital. See
"Foreign Investment and Exchange Controls in Brazil" in the Prospectus. Such
limitations on repatriation of capital, combined with U.S. Federal income tax
requirements applicable to regulated investment companies, would as a practical
matter make it unlikely that the Fund would be able to engage in a program of
repurchasing its own shares.
TAXATION
For a discussion of the U.S. Federal income tax consequences and the
Brazilian tax consequences to Record Date Shareholders and Rights Holders with
respect to the Offer, see "The Offer -- U.S. Federal Income Tax Consequences;
Brazilian Tax Consequences" in the Prospectus.
9
<PAGE>
UNITED STATES FEDERAL INCOME TAXES
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IT DOES NOT INCLUDE INFORMATION
SET FORTH IN THE PROSPECTUS UNDER "TAXATION -- U.S. TAXATION." IN VIEW OF THE
INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT
HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
BEING A SHAREHOLDER OF THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF U.S.
FEDERAL, STATE, LOCAL AND NON-U.S. TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
THEREIN.
General
The Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the tests for such status.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
-
dividends, interest, payments with respect to stock or securities loans, gains
from the sale or other disposition of stock or securities, and certain other
related income, including, generally, gains from options, futures and forward
contracts and foreign currency gains (under regulations which may be
promulgated, foreign currency gains which are not directly related to the Fund's
principal business of investing in stock or securities may not be treated as
qualifying income for this purpose); (b) derive in each taxable year less than
-
30% of its gross income from the sale or other disposition of stock, securities,
options, futures, forward contracts and foreign currencies, held less than three
months (excluding, for this purpose, gains from foreign currencies (and options,
futures and forward contracts on foreign currencies) that are directly related
to the Fund's principal business of investing in stocks or securities or options
or futures thereon); and (c) diversify its holdings so that, at the end of each
-
quarter of the taxable year, (i) at least 50% of the market value of the fund's
-
assets is represented by cash, U.S. government securities, securities of other
regulated investment companies, and other securities, with such other securities
of any one issuer qualifying, for purposes of this calculation, only if the
Fund's investment is limited to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
--
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment companies)
or of any two or more issuers that the Fund controls and that are determined to
be engaged in the same, similar or related businesses. Corporations owned or
controlled by the Government will be treated as separate issuers for this
purpose, except that a debt obligation of such a corporation may be treated as
issued by the Government if the obligation is backed by the full faith and
credit of the Government. Proposed legislation would eliminate the 30%
requirement; it is unclear whether, and in what form, such legislation might be
enacted.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its income and capital gains, if any, that it distributes
to its shareholders, provided it distributes each taxable year at least 90% of
its "investment company taxable income," calculated without the deduction for
dividends paid, as determined for U.S. Federal income tax purposes ("net
investment income"). Net investment income includes dividends, interest, net
short-term capital gains in excess of any net long-term capital losses and any
capital loss carryovers from prior years, net of expenses, and, net gain or loss
on debt securities and futures contracts on debt securities, to the extent
attributable to fluctuations in currency exchange rates, and net gain or loss on
foreign currencies and foreign currency forward contracts. Dividend income
derived by a regulated investment company from its investments is required to be
taken into account for U.S. Federal income tax purposes as of the ex-dividend
date (rather than the payment date, which generally is later). Accordingly, the
Fund, in order to satisfy its
10
<PAGE>
distribution requirements, may be required to make distributions based on
earnings that have been accrued but not yet received. Interest income from
discount on indebtedness held by the Fund will also give rise to such accrued
earnings. The Fund intends to distribute to its shareholders each year all of
its net investment income as computed for U.S. Federal income tax purposes.
Brazilian exchange control or other regulations, which may restrict repatriation
of investment income, capital or the proceeds of securities sales by foreign
investors such as the Fund, may limit the Fund's ability to make sufficient
distributions to satisfy the 90% distribution requirement and the calendar year
distribution requirement described below. See "Risk Factors and Special
Considerations -- Currency Conversion and Repatriation" and "Other Taxation."
To the extent that the Fund retains for investment any net long-term
capital gains in excess of any net short-term capital losses (including in such
losses any capital loss carryovers from prior years), as computed for U.S.
Federal income tax purposes, it will be subject to U.S. Federal income tax on
the amount retained at the then current rate, which currently is 35%. If any
such amount is retained, the Fund expects to designate such amount as
undistributed capital gains in a notice to its shareholders who (i) if subject
-
to U.S. Federal income tax on long-term capital gains, will be required to
include in income for such tax purposes, as long-term capital gains, their
proportionate shares of such undistributed amount, and (ii) will be entitled to
--
credit their proportionate shares of taxes paid by the Fund on such
undistributed amount against their U.S. Federal income tax liabilities and to
claim refunds to the extent such proportionate shares of the tax exceed such
liabilities. For U.S. Federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by 65% of the amount of
undistributed capital gains included in the shareholder's gross income.
The Fund will be subject to a non-deductible U.S. Federal 4% excise tax on
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with a calendar year distribution requirement. To avoid
application of the excise tax, the Fund intends to make its distributions in
accordance with such requirement. Exchange control or other regulations
referred to above, however, could limit the Fund's ability to satisfy such
requirement.
Distributions
Shareholders subject to U.S. Federal alternative minimum tax will be
required to include distributions from the Fund in alternative minimum taxable
income.
11
<PAGE>
If the fair market value of a shareholder's shares is reduced below the
shareholder's cost for such shares as a result of a distribution by the Fund,
such distribution will be taxable for U.S. Federal income tax purposes even
though from an economic viewpoint it may represent a return of invested capital.
Investors should, therefore, consider the tax implications of buying shares in
the Fund prior to a distribution since the price of shares purchased at that
time may reflect the amount of the forthcoming distribution and the distribution
will nevertheless be taxable to the purchasing shareholder. As of [September
30], 1995, there was approximately $[190] million of net unrealized appreciation
in the Fund's net assets of approximately $[327] million; if realized and
distributed, or deemed distributed, such gains would, in general, be taxable to
shareholders, including holders at that time of Shares acquired upon exercise of
the Rights. See "General" and "Non-U.S. Shareholders."
Shareholders will be notified as to the U.S. Federal income tax status of
any dividends, distributions and deemed distributions made by the Fund to its
shareholders.
Sale of Shares
Upon the sale or exchange of shares of the Fund, a U.S. shareholder will
realize a taxable gain or loss. Such gain or loss will be a capital gain or
loss if the shares are capital assets in the shareholder's hands, and will be
long-term or short-term depending upon whether the shareholder has held the
shares for more than one year. Under current U.S. Federal income tax law, the
maximum rate for long-term capital gains for individuals is 28% and short-term
capital gains are taxed at the same rate as ordinary income. Any loss realized
on a sale or exchange of Fund shares will be disallowed to the extent that the
shares disposed of are replaced, including, for example, pursuant to the Plan,
within a 61-day period beginning 30 days before and ending 30 days after the
date the shares are disposed of. In such a case, a U.S. shareholder will adjust
the basis of the shares acquired to reflect the disallowed loss. Any loss
realized by a U.S. shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains received by
the shareholder (and any amounts retained by the Fund which were designated as
undistributed capital gains) with respect to such shares.
Non-U.S. Income Taxes
The Fund will be subject to Brazilian income taxes, including withholding
taxes, described below under "Brazilian Taxes." So long as more than 50% in
value of the Fund's total assets at the close of any taxable year in which it is
a regulated investment company consists of stocks or securities of non-U.S.
corporations, the Fund may elect to treat any such non-U.S. Federal taxes paid
by it during such year (to the extent that such taxes are treated as income
taxes under U.S. Federal tax principles) as paid by its shareholders. The Fund
has qualified and expects to continue to qualify for this election annually.
The Fund will notify shareholders in writing each year if it makes the election
and of the amount of non-U.S. income taxes, if any, to be treated as paid by the
shareholders and the amount to be treated by them as income from non-U.S.
sources. If the Fund makes the election, share holders will be required to
include in income their proportionate shares of the amount of non-U.S. income
taxes paid by the Fund for purposes of computing their U.S. income tax. U.S.
shareholders
12
<PAGE>
will be entitled to claim either a credit (subject to the limitations discussed
below) or, if they itemize their deductions, a deduction for their shares of the
non-U.S. income taxes in computing their U.S. Federal income tax liability.
(For the treatment of non-U.S. shareholders, see "Non-U.S. Shareholders" below.)
No deduction will be permitted for such income taxes in computing the
alternative minimum tax imposed on individuals. Shareholders that are exempt
from tax under Section 501(a) of the Code, such as pension plans, generally will
derive no benefit from the Fund's election to pass through the Fund's non-U.S.
income taxes to its shareholders. However, such shareholders should not
ordinarily be disadvantaged because the amount of additional income they are
deemed to receive generally will not be subject to U.S. Federal income tax.
Brazilian withholding taxes currently imposed on dividends and interest qualify
as income taxes that the Fund may elect to treat as having been paid by its
shareholders,] [and the Fund believes that the Brazilian capital gains tax, if
imposed on the Fund by Brazil at some future date, should qualify for such
treatment. See "Brazilian Taxes."
Generally, a credit for non-U.S. income taxes is subject to the limitation
that it may not exceed the shareholder's U.S. Federal income tax (determined
without regard to the availability of the credit) attributable to his or her
total non-U.S. source taxable income. For this purpose, the portion of
distributions paid by the Fund from its non-U.S. source income will be treated
as non-U.S. source income. The Fund's gains from the sale of securities will
generally be treated as derived from U.S. sources, unless Brazilian capital
gains tax were to be imposed on such gains and the U.S. and Brazil entered into
a treaty permitting such gains to be treated as derived from a non-U.S. source,
in which case the Fund would expect to elect to treat such gains as so derived.
Additionally, certain currency fluctuation gains and losses, including
fluctuations gains from foreign currency denominated debt securities,
receivables and payables, will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to non-U.S. source
"passive income," such as the portion of dividends received from the Fund which
qualifies as non-U.S. source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the non-U.S. income taxes paid by the Fund.
The foregoing is only a general description of the treatment of non-U.S.
income taxes under the U.S. Federal income tax laws. Because the availability
of a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
Backup Withholding
Corporate shareholders and other shareholders specified in the Code are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. Federal
income tax liability.
Non-U.S. Shareholders
U.S. Federal income taxation of a shareholder who, under the Code, is a
non-resident alien individual, a foreign trust or estate, foreign corporation,
or foreign partnership ("non-U.S. shareholder") depends on whether the income
from the Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder. Ordinarily, income from the Fund will not be treated as
so "effectively connected."
13
<PAGE>
If the income from the Fund is not treated as "effectively connected" with
a U.S. trade or business carried on by the non-U.S. shareholder, dividends of
net investment income (which includes short-term capital gains), whether
received in cash or reinvested in shares, will be subject to a U.S. Federal
income tax of 30% (or lower treaty rate), which tax is generally withheld from
such dividends. See the definition of "net investment income" at "General"
above. Furthermore, such non-U.S. shareholders may be subject to U.S. Federal
income tax at the rate of 30% (or lower treaty rate) on their income resulting
from the Fund's election (described above) to "pass through" the amount of non-
U.S. taxes paid by the Fund, but may not be able to claim a credit or deduction
with respect to the non-U.S. income taxes treated as having been paid by them.
A non-U.S. shareholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
Federal income taxation on distributions of net long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains and any
gain realized upon the sale of Fund shares. The Fund will incur a U.S. Federal
income tax liability with respect to amounts retained by it that are designated
as undistributed capital gains. The non-U.S. shareholder may claim a credit with
respect to such taxes paid by the Fund and may claim a refund where such taxes
exceed such shareholder's U.S. Federal income tax liabilities, but must file a
tax return to do so. In addition, if the non-U.S. shareholder is treated as a
non-resident alien individual but is physically present in the United States for
more than 182 days during the taxable year, then in certain circumstances such
distributions of net long-term capital gains, amounts retained by the Fund which
are designated as undistributed capital gains, and gain from the sale of Fund
shares will be subject to a U.S. Federal income tax of 30% (or lower treaty
rate). In the case of a non-U.S. shareholder who is a non-resident alien
individual, the Fund may be required to withhold U.S. Federal income tax at a
rate of 31% of distributions (including distributions of net long-term capital
gains) unless IRS Form W-8 is provided. See "Backup Withholding."
If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. shareholder, then distributions of net
investment income (which includes short-term capital gains), whether received in
cash or reinvested in shares, net long-term capital gains and amounts otherwise
includible in income, such as amounts retained by the Fund which are designated
as undistributed capital gains, and any gains realized upon the sale of shares
of the fund, will be subject to U.S. Federal income tax at the graduated rates
applicable to U.S. taxpayers. Non-U.S. shareholders that are corporations may
also be subject to the branch profits tax.
Transfers of shares of the Fund by gift by a non-U.S. shareholder will
generally not be subject to U.S. Federal gift tax, but the value of shares of
the Fund held by such a shareholder at death will be includible in the
shareholder's gross estate for U.S. Federal estate tax purposes.
The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.
Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
the Fund.
Foreign Exchange-Related Transactions; Hedging Transactions
Debt securities denominated in foreign currencies (and, in some
circumstances, futures, options, forwards and other similar financial
instruments based on foreign currencies) held by the Fund, and gains or losses
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues income or expense denominated in a foreign currency and the time
the Fund actually collects
14
<PAGE>
such income or pays such expense, will be subject to special rules for
determining, among other things, the character and timing of income, deductions,
gain, and loss attributable to foreign exchange gain or loss. In general, these
rules operate to treat as ordinary income or loss (to be taken into account in
computing net investment income) the portion of a gain or loss so attributable.
In addition, the hedging transactions which may be undertaken by the Fund may
result in "straddles" for U.S. Federal income tax purposes. The straddle rules
may affect the character and timing of income, deduction, gain or loss
recognized by the Fund. Certain hedging transactions may increase the amount of
short-term capital gain realized by the Fund, which is taxed as ordinary income
when distributed to shareholders. These rules may also require the acceleration
of the recognition of income or gain by the Fund before the Fund receives the
cash required to make distributions to shareholders. All of these rules may
affect the timing and amount of distributions to shareholders. The gross income
and diversification requirements applicable to regulated investment companies,
described above, may limit the extent to which the Fund will be able to engage
in transactions in options, futures currency exchange contracts.
Other Taxation
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Fund may be subject to U.S. Federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income or gain is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. Proposed regulations would generally
allow the Fund to elect to mark to market annually all of the stock of passive
foreign investment companies held by the Fund. Gain recognized pursuant to such
election is generally treated as ordinary income subject to the distribution
requirements discussed above. It is unclear, however, whether and in what form
such regulations might be promulgated in final form. If the Fund were to invest
in a passive foreign investment company which the Fund elected to treat as a
"qualified electing fund" under the Code, in lieu of the foregoing requirements,
the Fund would ordinarily be required to include in income each year a portion
of the ordinary earnings and net capital gains of the qualified electing fund,
even if not distributed to the Fund, and such amounts would be subject to the
90% and calendar year distribution requirements described above. Proposed
legislation would revise the passive foreign investment company rules in various
respects; it is unclear whether and in what form, such legislation might be
enacted.
Distributions from the Fund may be subject to additional U.S. Federal,
state, local and non-U.S. taxes depending on each shareholder's particular
situation. Shareholders should consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund and of the
possible impact of changes in applicable tax laws.
If the Fund did not qualify as a regulated investment company for any
taxable year, (i) it would be subject to U.S. Federal income tax at regular
-
corporate rates on its taxable income (which would be computed without deduction
for distributions paid to shareholders) and to certain state and local taxes,
(ii) its distributions to shareholders out of its current or accumulated
--
earnings and profits would be taxable to shareholders as ordinary dividend
income (even if derived from long-term capital gains) and subject to withholding
in the case of non-U.S. shareholders and (iii) non-U.S. income taxes, and U.S.
---
Federal income taxes paid by the Fund on any undistributed long-term capital
gains, would not "pass through" to shareholders. In addition, if the Fund
failed to qualify for taxation as a regulated investment company for a period
greater than one taxable year, the Fund would be required to recognize any net
built-in gains (the excess of aggregate gains over aggregate losses that would
have been realized if it had been liquidated) if it were to qualify as a
regulated investment company in a later taxable year.
15
<PAGE>
BRAZILIAN TAXES
The following description of certain Brazilian tax matters relating to the
Fund and its shareholders represents the opinion of Brazilian counsel to the
Fund.
Capital gains earned by the Fund from its activities in Brazil are
currently exempt from income tax. However, the Brazilian Government introduced
a bill in the Brazilian Congress whereby the capital gains earned by Managed
Portfolios (as the Fund) would be subject to income tax at the following rates:
(i) 5%, when earned in the 1996 calendar year; (ii) 10%, when earned in the 1997
calendar year; and (iii) 15%, when earned in the 1998 calendar year.
Accordingly, no guarantee can be given that capital gains earned by the Fund
will remain exempt from income tax in the future.
Under Brazilian Law 8981 of January 20, 1995, a 15% withholding tax is
imposed on distribution of dividends and cash bonuses (but not on capital gains)
received from investments in securities at the time the Fund receives the
income. Other income (excluding capital gains), such as interest, premiums,
commissions and profit participation, is subject to a 10% withholding tax
imposed at the time the Fund earns income.
Upon distribution of income and/or total or partial liquidation of the
investment, the amount attributed to the foreign investor (including capital
gains and income) can be remitted abroad tax-free.
Dividends paid by the Fund outside of Brazil are not subject to any
Brazilian taxes.
Should the Fund contravene any applicable regulations, it could become
subject to Brazilian tax rates applicable to other foreign investors, which are
likely to be less favorable than those described above.
Pursuant to Decree 1591 of August 19, 1995, Reais resulting from the
conversion of the proceeds received by a Brazilian entity from a foreign
investment on the Brazilian securities market are subject to a tax on financial
transactions ("IOF"). Under article four thereof, the Ministry of Finance is
empowered to establish the applicable IOF rate. The IOF tax rate initially was
set at 0%, subsequently increased to 1.0% and on March 10, 1995 reduced to 0%
again. Under Law 8894 of June 21, 1994, such IOF rate may be increased at any
time to a maximum rate of 25%.
There are no other Brazilian taxes (currency gain, estate, sales, transfer,
property, stamp, etc.) applicable to the Fund or its shareholders in connection
with the Fund's proposed activities in Brazil.
PORTFOLIO TRANSACTIONS AND BROKERAGE
To the maximum extent feasible, the Manager places orders for portfolio
transactions through its wholly owned subsidiary, Scudder Investor Services,
Inc. (the "Distributor"), which in turn places orders on behalf of the Fund with
other brokers and dealers. The Distributor receives no commission, fees or
other remuneration from the Fund for this service. Allocation of brokerage is
supervised by the Manager.
The primary objective of the Manager in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable net
results, taking into account such factors as price, commission (fixed in the
case of transactions on the Stock Exchanges and subject to a 50% discount for
transactions effected by Brazilian brokers), size of order, difficulty of
execution and skill required of the broker/dealer. Orders for agency
transactions may be placed among Brazilian brokers,
16
<PAGE>
consistent with this policy. The Manager reviews on a routine basis commission
rates, execution and settlement services performed, and performs comparisons
among the Fund's brokers and with other brokers.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Manager's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes, or who supply research, market and statistical
information to the Manager. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Manager is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission or transaction cost in excess of that which another broker might have
charged for executing the same transaction solely on account of the receipt of
such research, market or statistical information. The Manager does not place
orders with brokers or dealers on the basis that the broker or dealer has or has
not sold shares of the Fund as part of its initial offering or the present
offering. Except for implementing the policy stated above, there is no
intention to place portfolio transactions with any particular brokers or dealers
or groups thereof. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Fund and to the Manager, such information, in
the Manager's opinion, is only supplementary to the Manager's own research
effort, since the information must still be analyzed, weighed and reviewed by
the Manager's staff. Such information may be useful to the Manager in providing
services to clients other than the Fund, and not all such information is used by
the Manager in connection with the Fund. Conversely, such information provided
to the Manager by brokers and dealers through whom other clients of the Manager
effect securities transactions may be useful to the Manager in providing
services to the Fund.
Consistent with the policy of seeking to obtain the most favorable net
results for the year ended December 31, 1994, the Fund paid brokerage
commissions of $______ (____% of the total brokerage commissions of $________)
for transactions placed with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or the Manager. The
amount of such transactions aggregated $________ (_____% of all transactions
subject to brokerage commissions). The balance of the brokerage commissions for
1994 was not allocated to any particular broker or dealer or with regard to the
above-mentioned or any other special factors.
During the fiscal years ended December 31, 1992 and 1993, the Fund paid
total brokerage commissions of $77,285 and $80,178, respectively.
17
<PAGE>
[LOGO] BRAZIL FUND, INC.
INDEX TO FINANCIAL STATEMENTS
================================================================================
Report of Independent Accountants...................................... F-2
Investment Portfolio, June 30, 1995.................................... F-3
Statement of Assets and Liabilities, June 30, 1995..................... F-6
Statement of Operations, for the six months ended June 30, 1995........ F-7
Statements of Changes in net assets for the six months ended
June 30, 1995 and year ended December 31, 1994....................... F-8
Financial Highlights for the six months ended June 30, 1995 and for
the years ended December 31, 1994.................................... F-9
Notes to Financial Statements, June 30, 1995........................... F-10
Investment Portfolio, December 31, 1994................................ F-14
Statement of Assets and Liabilities, December 31, 1994................. F-17
Statement of Operations, for the year ended December 31, 1994.......... F-18
Statements of Changes in net assets for the years ended
December 31, 1994 and 1993........................................... F-19
Financial Highlights for the years ended December 31, 1994............. F-20
Notes to Financial Statements, December 31, 1994....................... F-21
F-1
<PAGE>
[LOGO] BRAZIL FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To The Shareholders and the Board of Directors of The Brazil Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Brazil Fund, Inc. (the "Fund")
at June 30, 1995, the results of its operations, the changes in its net assets
and the financial highlights for each of the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1995 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 16, 1995
F-2
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO as of June 30, 1995
<TABLE>
<CAPTION>
======================================================================================================================
Industry Shares Company Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY SECURITIES 96.0%
AUTO PARTS 0.9% 93,761,800 (pfd.) Metal Leve S.A. Industria e Comercio........ 2,648,351
----------
BANKING 9.9% 671,737,708 (pfd.) Banco Bradesco S.A. ........................ 5,692,074
76,294,208 (pfd.) Banco Itau S.A. ............................ 23,207,364
----------
28,899,438
----------
CHEMICALS 6.4% 28,647,000 (voting) Companhia Petroquimica do Sul S.A. ......... 1,117,249
5,039,400 (pfd.) COPENE Petroquimica do Nordeste S.A. "A".... 3,980,004
1,458,646,800 (voting) Ucar Carbon S.A. ........................... 1,774,779
12,833,921,463 (voting) S/A White Martins. ......................... 11,711,563
----------
18,583,595
----------
CONSTRUCTION 1.5% 4,476,300 (voting) Odebrecht S.A. ............................. 2,514,120
1,182,600 (voting) S/A Moinho Santista Industrias Gerais*...... 1,862,868
----------
4,376,988
----------
ELECTRICAL EQUIPMENT 4.9% 9,042,000 (pfd.) Brasmotor S.A. ............................. 1,669,897
5,813,800 (pfd.) Empresa Brasileira de Compressores S.A.(b).. 3,979,027
610,582 (voting) Pirelli Cabos S.A.*......................... 862,310
17,006,600 (pfd.) Weg S.A. ................................... 7,759,665
----------
14,270,899
----------
FOOD AND BEVERAGE 12.0% 56,096,254 (pfd.) Companhia Cervejaria Brahma ................ 18,403,593
1,001,659 (pfd.) Companhia Cervejaria Brahma (New (c)) ...... 299,246
6,314,433 (pfd.) Companhia Cervejaria Brahma Warrants
(expire 9/30/96)* (b) .................... 823,174
14,551,430 (pfd.) Sadia Concordia S/A. ....................... 13,595,035
1,768,900 (voting) Santista Alimentos S.A.*.................... 1,345,171
43,281,812 (pfd.) Sementes Agroceres S/A. .................... 728,808
----------
35,195,027
----------
FOREST PRODUCTS 10.2% 5,733,599 (pfd.) Aracruz Celulose S.A. "B"*.................. 13,391,893
2,199,600 (pfd.) Companhia Suzano de Papel e Celulose........ 11,230,983
3,623,792 (pfd.) Industrias Klabin de Papel e Celulose S/A... 5,117,794
----------
29,740,670
----------
GLASS 3.2% 2,270,236 (voting) Companhia Vidraria Santa Marina............. 9,310,311
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Industry Shares Company Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IRON AND STEEL 3.2% 12,911,670 (voting) Companhia Siderurgica Belgo-Mineira ........ 1,280,647
7,200,000,000 (pfd.) Usinas Siderurgicas de Minas Gerais S/A .... 8,134,709
-----------
9,415,356
-----------
MINING 6.6% 113,888,000 (pfd.) Companhia Vale do Rio Doce ................. 17,197,645
10,368,389 (pfd.) S.A. Mineracao da Trindade ................. 259,069
36,396,800 (voting) S.A. Mineracao da Trindade ................. 1,779,311
-----------
19,236,025
-----------
PETROLEUM 6.4% 222,739,999 (pfd.) Petroleo Brasileiro S/A .................... 18,874,221
-----------
RETAILING 3.8% 15,408,041 (pfd.) Casa Anglo Brasileira S.A.* ................ 1,456,273
101,031,600 (pfd.) Lojas Americanas S.A. ...................... 2,250,025
247,237,800 (voting) Lojas Americanas S.A. ...................... 5,626,977
27,899,465 (pfd.) Mesbla S.A. ................................ 1,666,997
-----------
11,000,272
-----------
TELECOMMUNICATIONS 12.4% 511,256,600 (pfd.) Telecomunicacoes Brasileiras S.A. .......... 16,828,979
7,358,900 (pfd.) Telecomunicacoes do Parana S.A. ............ 2,046,582
141,212,067 (pfd.) Telecomunicacoes de Sao Paulo S.A. ......... 17,486,978
-----------
36,362,539
-----------
TEXTILES AND APPAREL 3.2% 457,766,740 (pfd.) Cia. Hering ................................ 3,978,418
92,193,348 (pfd.) Cia. Hering Textile (b) .................... 250,389
32,529,600 (pfd.) Sao Paulo Alpargatas S.A. .................. 5,124,163
-----------
9,352,970
-----------
TOBACCO 5.0% 1,943,043 (voting) Companhia Souza Cruz Industria e Comercio .. 14,670,450
-----------
UTILITY 6.4% 19,000,000 (pfd.) Centrais Eletricas Brasileiras S/A "B" ..... 5,057,034
540,740,952 (pfd.) Companhia Energetica de Minas Gerais ....... 10,573,968
45,510,000 (pfd.) Companhia Energetica de Sao Paulo .......... 1,799,635
217,211,500 (voting) Companhia Paranaense de Energia ............ 1,422,906
-----------
18,853,543
-----------
TOTAL EQUITY SECURITIES (Cost $120,276,286). 280,790,655
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
=================================================================================================
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE
AGREEMENT 4.0%
11,633,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette, dated 6/30/95 at
6.07%, to be repurchased at
$11,638,884 on 7/3/95, collateralized
by a $11,970,000 U.S. Treasury Note,
4.75%, 8/31/98 (Cost $11,633,000) ......... 11,633,000
-----------
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $131,909,286) (a) ................... 292,423,655
===========
<FN>
(a) The cost of the investment portfolio for federal income tax purposes
was $131,928,453. At June 30, 1995, net unrealized appreciation for all
securities based on tax cost was $160,495,202. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $166,401,634 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $5,906,432.
(b) Securities valued in good faith by the Board of Directors. The cost of
these securities at June 30, 1995 aggregated $2,553,185. See Note A of the
Notes to Financial Statements.
(c) New shares issued during 1995, eligible for a pro rata share of 1995
dividends.
* Non-income producing security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
=================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (identified cost $131,909,286) (Notes A and D)......... $ 292,423,655
Cash ........................................................................ 479
Foreign currency holdings, at market (identified cost $4,884,225) (Note A) .. 4,806,423
Receivable for investments sold ............................................. 65,770
Dividends and interest receivable ........................................... 666,390
Other assets ................................................................ 1,768
-------------
Total assets ................................................ 297,964,485
LIABILITIES
Payables:
Investments purchased ..................................................... $ 86,710
Accrued management fee (Note C) ........................................... 299,268
Accrued administrator's fee (Note C) ...................................... 8,333
Other accrued expenses (Note C) ........................................... 388,921
------------
Total liabilities ........................................... 783,232
-------------
Net assets .................................................................. $ 297,181,253
=============
NET ASSETS
Net assets consist of:
Undistributed net investment income ....................................... $ 3,143,646
Accumulated net realized gain ............................................. 10,221,173
Net unrealized appreciation (depreciation) on:
Investments ............................................................. 160,514,369
Foreign currency denominated transactions ............................... (83,646)
Common stock .............................................................. 121,463
Additional paid-in capital ................................................ 123,264,248
-------------
Net assets .................................................................. $ 297,181,253
=============
Net asset value per share ($297,181,253 divided by 12,146,285 shares of
common stock outstanding, 50,000,000 shares authorized, $.01 par value).... $ 24.47
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
=================================================================================================================
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of withholding tax of $976,899) (Note A)...... $ 5,404,301
Interest..................................................... 329,470
---------------
5,733,771
Expenses:
Management fee (Note C)...................................... $ 1,813,742
Administrator's fee (Note C)................................. 28,660
Custodian and accounting fees (Note C)....................... 542,296
Directors' fees and expenses (Note C)........................ 43,692
Auditing and tax services.................................... 49,250
Reports to shareholders...................................... 26,541
Legal........................................................ 8,920
Other........................................................ 77,024 2,590,125
--------------- ---------------
Net investment income 3,143,646
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (Note A)......................................... 10,626,743
Foreign currency denominated transactions.................... (302,140) 10,324,603
---------------
Net unrealized depreciation during the period on:
Investments.................................................. (91,018,976)
Foreign currency denominated transactions.................... (46,186) (91,065,162)
--------------- ---------------
Net loss on investment transactions............................ (80,740,559)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ (77,596,913)
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS JUNE 30, 1995 DECEMBER 31,1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................ $ 3,143,646 $ (2,009,799)
Net realized gain from investment transactions .......................... 10,324,603 28,598,195
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................................ (91,065,162) 125,691,549
------------ -------------
Net increase (decrease) in net assets resulting from operations ........... (77,596,913) 152,279,945
------------ -------------
Distributions to shareholders from net realized gains from
investment transactions ($.24 and $2.46 per share, respectively) ...... (2,853,224) (29,783,356)
------------ -------------
Net asset value of shares issued to shareholders in reinvestment of
distributions ......................................................... 1,109,418 330,047
------------ -------------
INCREASE (DECREASE) IN NET ASSETS ......................................... (79,340,719) 122,826,636
Net assets at beginning of period ......................................... 376,521,972 253,695,336
------------ -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $3,143,646 in 1995) ......................................... $297,181,253 $ 376,521,972
============ =============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period ................................. 12,107,722 12,093,826
Shares issued to shareholders in reinvestment of distributions ......... 38,563 13,896
------------ -------------
Shares outstanding at end of period........................................ 12,146,285 12,107,722
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
FINANCIAL HIGHLIGHTS
===============================================================================
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------
1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $ 31.10 $ 20.98 $ 14.12 $ 13.80 $ 5.97 $ 18.85
------- ------- ------- ------- ------- -------
Net investment income (loss)(a)........... .26 (.17) .10 .19 .95 1.32
Net realized and unrealized gain
(loss) on investment transactions(a)..... (6.65) 12.75 7.58 .79 6.88 (14.08)
------- ------- ------- ------- ------- -------
Total from investment operations............ (6.39) 12.58 7.68 .98 7.83 (12.76)
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income..................... - - (.08) - - (.12)
Net realized gains on investments......... (.24) (2.46) (.74) (.66) - -
------- ------- ------- ------- ------- -------
Total distributions......................... (.24) (2.46) (.82) (.66) - (.12)
------- ------- ------- ------- ------- -------
Net asset value, end of period.............. $ 24.47 $ 31.10 $ 20.98 $ 14.12 $ 13.80 $ 5.97
======= ======= ======= ======= ======= =======
Market value, end of period................. $ 25.13 $ 33.00 $ 21.13 $ 13.63 $ 14.75 $ 6.63
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN
Per share market value (%)................ (23.10)** 69.81 60.89 (3.91) 122.64 (47.98)
Per share net asset value (%)(b).......... (20.50)** 61.09 54.19 6.43 131.16 (67.98)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions).... 297 377 254 171 167 72
Ratio of operating expenses to
average net assets (%)(c)................ 1.67* 1.71 1.84 2.22 2.15 2.25
Ratio of net investment income (loss)
to average net assets (%)................ 2.02* (.58) .56 1.13 8.13 11.27
Portfolio turnover rate (%)............... 9.91* 5.76 4.67 7.94 12.69 4.31
<FN>
(a) Realized and unrealized currency losses on the Fund's interest bearing
accounts amounted to $.31, $.86 and $2.96 per share in 1992, 1991 and
1990, respectively, of which $1.27 per share is included in net investment
income in 1990.
(b) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund
during each period, and assumes dividends and capital gains distributions,
if any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value of the Fund during each period.
(c) For the years ended December 31, 1993, 1992 and 1990 the ratio of
expenses, including the Brazilian repatriation tax, to average net assets
was 2.22%, 2.39% and 2.56%, respectively.
* Annualized
** Not annualized
</TABLE>
F-9
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The Brazil Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, closed-end management investment
company. The policies described below are followed consistently by the Fund in
the preparation of its financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors. Securities valued in good
faith amounted to $5,052,590 (1.7% of net assets) and are noted in the
Investment Portfolio as of June 30, 1995.
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) values of investment securities, other assets and liabilities
at the daily rate of exchange;
(ii) purchases and sales of investment securities, dividend and
interest income and expenses at the daily rate of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
TAXATION. The Fund's policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies, and to
distribute all of its taxable income to its shareholders. The Fund accordingly
paid no U.S. federal income taxes, and no federal income tax provision was
required.
The Fund is subject to a 15% withholding tax on dividend and interest income.
DISTRIBUTION OF INCOME AND GAINS. The Fund intends to distribute to
shareholders, at least annually, all of its tax basis net investment income, any
net short-term capital gains in excess of net long-term capital losses
(including any capital loss carryover) and expects to distribute annually any
net long-term capital gains in excess of net short-term capital losses
(including any capital loss carryover), which would be taxable to the Fund if
not distributed. An additional distribution may be made to the extent necessary
to avoid the payment of a four percent federal excise tax.
F-10
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to foreign denominated investments and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment and foreign currency related transactions for
a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Distributions to shareholders are recorded at the earlier
of ex or record date. The Fund uses the identified cost method for determining
realized gain or loss on investments and foreign currency for both financial and
federal income tax reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the six months ended June 30, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $15,123,855 and
$26,922,255, respectively.
C. INVESTMENT ADVISORY AGREEMENTS AND
TRANSACTIONS WITH AFFILIATED PERSONS
- --------------------------------------------------------------------------------
Under the Fund's Investment Advisory and Management Agreement (the "Management
Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund agrees
to pay the Adviser a monthly fee at an annual rate equal to 1.30% of the first
$150,000,000 of the Fund's average weekly net assets, 1.25% of such assets over
$150,000,000 and up to and including $300,000,000, and 1.20% of such assets in
excess of $300,000,000. For the six months ended June 30, 1995, the fee pursuant
to the Management Agreement amounted to $1,813,742.
The Adviser has entered into a Research and Advisory Agreement (the "Advisory
Agreement") with Banco Icatu S/A (the "Brazilian Adviser"), whereby the
Brazilian Adviser provides such investment advice, research, and assistance as
the Adviser may from time to time reasonably request. Under the Advisory
Agreement, the Adviser pays the Brazilian Adviser a monthly fee, equal to 0.25%
of the first $150,000,000 of the Fund's average weekly net assets, 0.15% of such
assets over $150,000,000 and up to and including $300,000,000, and 0.05% of such
assets over $300,000,000. Additionally, the Brazilian Adviser has agreed to
waive approximately one half of their fees. The Adviser has agreed to pass this
waiver through to the Fund and has reduced its fees accordingly. For the six
months ended June 30, 1995, the fee pursuant to the Advisory Agreement
aggregated $299,142, of which $149,571 was waived and reflected as a reduction
of the management fee.
The Fund and the Adviser entered into an Administration Agreement with Banco de
Boston S.A. ("Banco de Boston"), pursuant to which Banco de Boston acts as the
Fund's Brazilian Administrator. The Fund has agreed to pay Banco de Boston, for
services rendered, an annual fee payable quarterly in Brazilian currency equal
to $50,000 per year plus out of pocket expenses. For the six months ended June
30, 1995, the Administrator fee amounted to $28,660.
Effective June 6, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
wholly-owned subsidiary of the Adviser, assumed responsibility for determining
the daily net asset value per share and maintaining the portfolio and general
accounting records of the Fund. For the six months ended June 30, 1995, the
amount charged to the Fund by SFAC aggregated $12,744, all of which is unpaid at
June 30, 1995.
F-11
<PAGE>
================================================================================
The Fund pays each Director not affiliated with the Adviser an annual fee of
$6,000 except for two Directors who, as residents of Brazil, receive a fee of
$12,000, plus specified amounts for each Board of Directors or committee meeting
attended. For the six months ended June 30, 1995, Directors' fees and expenses
amounted to $43,692.
D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN
BRAZIL
- --------------------------------------------------------------------------------
Investing in Brazil may involve considerations not typically associated with
investing in securities issued by domestic companies such as more volatile
prices and less liquid securities.
The Brazilian Government has exercised and continues to exercise substantial
influence over many aspects of the private sector by legislation and regulation,
including regulation of prices and wages.
Brazilian law imposes certain limitations and controls which generally affect
foreign investors in Brazil. The Fund has obtained from the Brazilian Securities
Commission authorization, subject to certain restrictions, to invest in
Brazilian securities. Under current Brazilian law, the Fund may repatriate
income received from dividends and interest earned on, and net realized capital
gains from, its investments in Brazilian securities. Under its authorization,
the Fund may also repatriate capital, but only to the extent necessary to
distribute income and capital gains (as computed for U.S. federal income tax
purposes), to pay expenses incurred outside of Brazil, to repay borrowings made
for temporary or emergency purposes, and in connection with the termination of
the Fund (provided that the Fund's dissolution has been approved by holders of
at least two-thirds of the Fund's shares). Under current Brazilian law, whenever
there occurs a serious imbalance in Brazil's balance of payments or serious
reasons to foresee the imminence of such an imbalance, Brazil's National
Monetary Council may, for a limited period, impose restrictions on foreign
capital remittances abroad. Exchange control regulations, which may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors, may limit the Fund's ability to make sufficient
distributions, within applicable time periods, to qualify for the favorable U.S.
tax treatment afforded to regulated investment companies.
The Fund is unable to predict whether further economic reforms or modifications
to the existing policies by the Brazilian Government may adversely affect the
liquidity of the Brazilian stock market in the future.
F-12
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET GAIN (LOSS) NET INCREASE
ON INVESTMENT AND (DECREASE)
FOREIGN CURRENCY IN NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING
INCOME INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
------------------ ------------------- ----------------------- ----------------------
PER PER PER PER
1995 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, $ 3,337 $ .27 $ 2,007 $ .17 $ (104,842) $ (8.64) $ (102,835) $ (8.47)
June 30, 2,397 .20 1,137 .09 24,101 1.99 25,238 2.08
------- ----- ------- ----- ---------- ------- ---------- -------
Totals $ 5,734 $ .47 $ 3,144 $ .26 $ (80,741) $ (6.65) $ (77,597) $ (6.39)
======= ===== ======= ===== ========== ======= ========== =======
</TABLE>
<TABLE>
<CAPTION>
PER PER PER PER
1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, $ 1,119 $ .09 $ (373) $(.03) $ 83,849 $ 6.93 $ 83,476 $ 6.90
June 30, 986 .08 (133) (.01) (62,259) (5.15) (62,392) (5.16)
September 30, 1,017 .09 (503) (.04) 182,768 15.11 182,265 15.07
December 31, 829 .07 (1,001) (.09) (50,068) (4.14) (51,069) (4.23)
------- ----- ------- ----- ---------- ------- ---------- -------
Totals $ 3,951 $ .33 $(2,010) $(.17) $ 154,290 $ 12.75 $ 152,280 $ 12.58
======= ===== ======= ===== ========== ======= ========== =======
</TABLE>
F-13
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
===============================================================================
To The Shareholders and the Board of Directors of
The Brazil Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Brazil Fund, Inc. (the "Fund")
at December 31, 1994, the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1994 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 13, 1995
F-14
<PAGE>
The Brazil Fund, Inc.
Investment Portfolio As Of December 31, 1994
<TABLE>
<CAPTION>
========================================================================================================================
Industry Shares Company Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY SECURITIES 92.8%
AUTO PARTS 1.1% 103,761,800 (pfd.) Metal Leve S.A. Indcstria e Comercio . . . . . 4,354,071
----------
BANKING 5.4% 77,794,208 (pfd.) Banco Itac S.A. . . . . . . . . . . . . . . . 21,794,332
----------
CHEMICALS 7.8% 21,347,000 (voting) Companhia Petroquimica do Sul S.A. . . . . . . 1,261,643
11,029,400 (pfd.) COPENE Petroquimica do Nordeste S.A. "A" . . . 9,634,429
182,330,850 (voting) Ucar Carbon S.A. . . . . . . . . . . . . . . . 3,232,816
1,176,720,133 (voting) S/A White Martins. . . . . . . . . . . . . . . 17,108,342
----------
31,237,230
----------
CONSTRUCTION 2.2% 4,476,300 (voting) Odebrecht S.A. . . . . . . . . . . . . . . . . 3,783,161
1,182,600 (voting) S/A Moinho Santista Indcstrias Gerais* . . . . 4,892,553
----------
8,675,714
----------
ELECTRICAL EQUIPMENT 5.9% 14,718,000 (pfd.) Brasmotor S.A. . . . . . . . . . . . . . . . . 5,967,227
5,613,800 (pfd.) Empresa Brasileira de Compressores S.A. (b). . 5,175,844
610,582 (voting) Pirelli Cabos S.A.*. . . . . . . . . . . . . . 1,263,024
17,006,600 (pfd.) Weg S.A. (b) . . . . . . . . . . . . . . . . . 11,458,348
----------
23,864,443
----------
FOOD AND BEVERAGE 11.2% 58,096,254 (pfd.) Companhia Cervejaria Brahma . . . . . . . . . 19,149,102
6,314,433 (pfd.) Companhia Cervejaria Brahma Warrants
(expire 9/30/96)* . . . . . . . . . . . . . 671,748
1,748,900 (voting) Santista Alimentos S.A.* . . . . . . . . . . . 3,597,028
14,551,430 (pfd.) Sadia Concordia S/A. . . . . . . . . . . . . . 20,296,321
51,481,812 (pfd.) Sementes Agroceres S/A. . . . . . . . . . . . 1,399,624
----------
45,113,823
----------
FOREST PRODUCTS 9.0% 4,747,700 (pfd.) Aracruz Celulose S.A. "B"* . . . . . . . . . . 12,901,847
2,236,600 (pfd.) Companhia Suzano de Papel e Celulose S.A. . . 15,333,664
5,199,792 (pfd.) Indcstrias Klabin de Papel e Celulose S/A. . . 7,744,371
----------
35,979,882
----------
GLASS 2.9% 2,310,236 (voting) Companhia Vidraria Santa Marina. . . . . . . . 11,824,258
----------
IRON AND STEEL 5.0% 17,207,708 (pfd.) Companhia Sidercrgica Belgo-Mineira. . . . . . 2,379,789
12,911,670 (voting) Companhia Sidercrgica Belgo-Mineira. . . . . . 1,839,074
185,600,000 (voting) Companhia Sidercrgica Nacional . . . . . . . . 6,329,267
7,000,000,000 (pfd.) Usinas Sidercrgicas de Minas Gerais S/A . . . 9,515,366
----------
20,063,496
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
The Brazil Fund, Inc.
Investment Portfolio (Continued)
<TABLE>
<CAPTION>
========================================================================================================================
Industry Shares Company Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINING 7.3% 133,888,000 (pfd.) Companhia Vale do Rio Doce . . . . . . . . . . . . 25,479,868
32,408,536 (pfd.) S.A. Mineraceo da Trindade . . . . . . . . . . . . 1,681,720
33,088,000 (voting) S.A. Mineraceo da Trindade . . . . . . . . . . . . 1,994,667
------------
29,156,255
------------
PETROLEUM 7.7% 245,739,999 (pfd.) Petroleo Brasileiro S/A. . . . . . . . . . . . . . 31,077,686
------------
RETAILING 4.8% 15,408,041 (pfd.) Casa Anglo Brasileira S.A.* . . . . . . . . . . . 3,642,563
119,311,600 (pfd.) Lojas Americanas S.A. . . . . . . . . . . . . . . 3,525,757
242,237,800 (voting) Lojas Americanas S.A. . . . . . . . . . . . . . . 6,731,691
29,909,465 (pfd.) Mesbla S.A. . . . . . . . . . . . . . . . . . . . 5,373,805
------------
19,273,816
------------
TELECOMMUNICATIONS 11.8% 561,256,600 (pfd.) Telecomunicacges Brasileiras S.A. . . . . . . . . 25,143,765
6,478,900 (pfd.) Telecomunicacges do Parana S.A. . . . . . . . . . 2,144,317
141,212,067 (pfd.) Telecomunicacges de Seo Paulo S.A. . . . . . . . . 20,113,539
------------
47,401,621
------------
TEXTILES AND APPAREL 3.3% 460,166,740 (pfd.) Cia. Hering . . . . . . . . . . . . . . . . . . . 7,071,120
32,529,600 (pfd.) Seo Paulo Alpargatas S.A. . . . . . . . . . . . . 6,152,170
------------
13,223,290
------------
TOBACCO 4.0% 1,943,043 (voting) Companhia Souza Cruz Indcstria e Comercio. . . . . 16,077,188
------------
TRANSPORTATION 0.1% 139,030 (pfd.) Varig S.A.* . . . . . . . . . . . . . . . . . . . 460,147
------------
UTILITY 3.3% 145,408,480 (pfd.) Cia. Energetica de Minas Gerais . . . . . . . . . 13,234,578
15,911,500 (voting) Companhia Paranaense de Energia. . . . . . . . . . 169,459
------------
13,404,037
------------
TOTAL EQUITY SECURITIES (Cost $121,447,944). . . . 372,981,289
------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Principal
Amount ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 7.2%
7,000,000 Chevron Oil Finance Co., 5.48%, 1/5/95 . . . . . . 7,000,000
21,762,000 CIT Group Holdings Inc., 6.05%, 1/3/95 . . . . . . 21,762,000
------------
TOTAL COMMERCIAL PAPER (Cost $28,762,000). . . . . 28,762,000
------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $150,209,944) (a) . . . . . . . . . . . . 401,743,289
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
(a) The cost of the investment portfolio for federal income tax purposes was
$150,229,111. At December 31, 1994, net unrealized appreciation for all
securities based on tax cost was $251,514,178. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $251,757,523 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $243,345.
(b) Securities valued in good faith by the Board of Directors. The cost of
these securities at December 31, 1994 aggregated $5,227,974. See Note A of
the Notes to Financial Statements.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
The Brazil Fund, Inc.
Financial Statements
<TABLE>
<CAPTION>
==================================================================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (identified cost $150,209,944) (Notes A and D) . . . . $ 401,743,289
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,102
Foreign currency holdings, at market (identified cost $882,345) (Note A) . . 888,603
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . . . . 243,342
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,979
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,880,315
LIABILITIES
Payables:
Dividend Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,668,371
Accrued management fee (Note C) . . . . . . . . . . . . . . . . . . . . . 405,013
Accrued administrator's fee (Note C) . . . . . . . . . . . . . . . . . . . 33,333
Other accrued expenses (Note C) . . . . . . . . . . . . . . . . . . . . . 251,626
-------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,358,343
-------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 376,521,972
=============
NET ASSETS
Net assets consist of:
Accumulated net realized gain . . . . . . . . . . . . . . . . . . . . . . $ 2,749,794
Net unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,533,345
Foreign currency denominated transactions . . . . . . . . . . . . . . . (37,460)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,077
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 122,155,216
-------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 376,521,972
=============
NET ASSET VALUE per share ($376,521,972 -:- 12,107,722 shares of common stock
outstanding, 50,000,000 shares authorized, $.01 par value) . . . . . . . . $31.10
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of withholding tax of $582,727) (Note A) . . . . . . . . $ 3,283,641
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667,145
-------------
3,950,786
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . . . . . . . . $ 4,371,086
Administrator's fee (Note C) . . . . . . . . . . . . . . . . . . . . . 52,961
Directors' fees and expenses (Note C) . . . . . . . . . . . . . . . . . 84,504
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,419
Auditing, accounting and tax services . . . . . . . . . . . . . . . . . 85,600
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 51,917
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,069
IPMF tax (Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,687
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,342 5,960,585
------------- -------------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,009,799)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (net of IOF tax of $47,046) (Note A) . . . . . . . . . . . 28,912,830
Foreign currency denominated transactions . . . . . . . . . . . . . . . (314,635) 28,598,195
-------------
Net unrealized appreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,676,020
Foreign currency denominated transactions . . . . . . . . . . . . . . . 15,529 125,691,549
------------- -------------
Net gain on investment transactions . . . . . . . . . . . . . . . . . . . 154,289,744
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . $ 152,279,945
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
The Brazil Fund, Inc.
Financial Statements
<TABLE>
<CAPTION>
===================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) . . . . . . . . . . . . . . . . . . . $ (2,009,799) $ 1,231,789
Net realized gain from investment transactions . . . . . . . . . . 28,598,195 10,570,428
Net unrealized appreciation on investment
transactions during the period . . . . . . . . . . . . . . . . 125,691,549 80,936,531
-------------- -------------
Net increase in net assets resulting from operations . . . . . . . . 152,279,945 92,738,748
-------------- -------------
Distributions to shareholders from:
Net investment income ($.08 per share) . . . . . . . . . . . . . . -- (967,506)
-------------- -------------
Net realized gains from investment transactions
($2.46 and $.74 per share, respectively) . . . . . . . . . . . (29,783,356) (8,888,487)
-------------- -------------
Net asset value of shares issued to shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 330,047 181,900
-------------- -------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . 122,826,636 83,064,655
Net assets at beginning of period . . . . . . . . . . . . . . . . . . 253,695,336 170,630,681
-------------- -------------
NET ASSETS AT END OF PERIOD (including accumulated net investment
loss of $39,750 in 1993) . . . . . . . . . . . . . . . . . . . . . $ 376,521,972 $ 253,695,336
============== =============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . 12,093,826 12,081,227
Shares issued to shareholders in reinvestment of distributions . . 13,896 12,599
-------------- -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . 12,107,722 12,093,826
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
The Brazil Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
====================================================================================================================
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE
INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS AND MARKET PRICE DATA.
- --------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period . . . . . . . $20.98 $14.12 $13.80 $ 5.97 $ 18.85
------ ------ ------ ------- -------
Net investment income (loss)(a) . . . . . . . . . (.17) .10 .19 .95 1.32
Net realized and unrealized gain
(loss) on investment transactions(a) . . . . . . 12.75 7.58 .79 6.88 (14.08)
------ ------ ------ ------- -------
Total from investment operations . . . . . . . . . 12.58 7.68 .98 7.83 (12.76)
------ ------ ------ ------- -------
Less distributions from:
Net investment income . . . . . . . . . . . . . . -- (.08) -- -- (.12)
Net realized gains on investments . . . . . . . . (2.46) (.74) (.66) -- --
------ ------ ------ ------- -------
Total distributions . . . . . . . . . . . . . . . . (2.46) (.82) (.66) -- (.12)
------ ------ ------ ------- -------
Net asset value, end of period . . . . . . . . . . $31.10 $20.98 $14.12 $ 13.80 $ 5.97
====== ====== ====== ======= =======
Market value, end of period . . . . . . . . . . . . $33.00 $21.13 $13.63 $ 14.75 $ 6.63
====== ====== ====== ======= =======
TOTAL INVESTMENT RETURN
Per share market value (%) . . . . . . . . . . . 69.81 60.89 (3.91) 122.64 (47.98)
Per share net asset value (%)(b) . . . . . . . . 61.09 54.19 6.43 131.16 (67.98)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . 377 254 171 167 72
Ratio of operating expenses to
average net assets (%)(c) . . . . . . . . . . . . 1.71 1.84 2.22 2.15 2.25
Ratio of net investment income (loss)
to average net assets (%) . . . . . . . . . . . . (.58) .56 1.13 8.13 11.27
Portfolio turnover rate (%) . . . . . . . . . . . 5.76 4.67 7.94 12.69 4.31
<FN>
(a) Realized and unrealized currency losses on the Fund's interest bearing accounts amounted to $.31, $.86 and $2.96
per share in 1992, 1991 and 1990, respectively, of which $1.27 per share is included in net investment income in 1990.
(b) Total investment return based on per share net asset value reflects the effects of changes in net asset value on the
performance of the Fund during each period, and assumes dividends and capital gains distributions, if any, were reinvested.
These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market value
due to differences between the market price of the stock and the net asset value of the Fund during each period.
(c) For the years ended December 31, 1993, 1992 and 1990 the ratioexpenses, including the Brazilian repatriation tax, to average
net assets was 2.22%, 2.39% and 2.56%, respectively.
</TABLE>
F-21
<PAGE>
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The Brazil Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, closed-end management investment
company. The policies described below are followed consistently by the Fund in
the preparation of its financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors. Securities valued in good
faith amounted to $16,634,192 (4.4% of net assets) and are noted in the
Investment Portfolio as of December 31, 1994.
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) values of investment securities, other assets and liabilities at
the daily rate of exchange;
(ii) purchases and sales of investment securities, dividend and interest
income and expenses at the daily rate of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
TAXATION. The Fund's policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies, and to
distribute all of its taxable income to its shareholders. The Fund accordingly
paid no U.S. federal income taxes, and no federal income tax provision was
required.
Effective January 1, 1994, the Fund will be subject to a 15% withholding tax on
dividend and interest income. Prior to January 1, 1994, the Fund had been
subject to a 15% Brazilian repatriation tax with respect to remittances outside
of Brazil of its dividend and interest income net of applicable expenses. The
Fund is also subject to a 0.25% Imposto Provisorio Sobre Movimentacoes
Financieras ("IPMF") tax on debits (withdrawals) for banking transactions.
Effective January 1, 1995, the IPMF tax will no longer be enforced.
Additionally, the Fund is subject to a variable rate Imposto Sobre Operacoes
Financeiras ("IOF") tax which is imposed on the redemption of certain
short-term investments. Effective October 20, 1994, the Fund was no longer able
to hold such short-term investments. Therefore, the Fund was not subject to the
IOF tax subsequent to that date.
F-22
<PAGE>
DISTRIBUTION OF INCOME AND GAINS. The Fund intends to distribute to
shareholders, at least annually, all of its tax basis net investment income,
any net short-term capital gains in excess of net long-term capital losses
(including any capital loss carryover) and expects to distribute annually any
net long-term capital gains in excess of net short-term capital losses
(including any capital loss carryover), which would be taxable to the Fund if
not distributed. An additional distribution may be made to the extent necessary
to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated investments and
certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment and foreign currency related
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Distributions to shareholders are recorded at
the earlier of ex or record date. The Fund uses the identified cost method for
determining realized gain or loss on investments and foreign currency for both
financial and federal income tax reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
During the year ended December 31, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $18,932,956 and
$46,021,425, respectively.
C. INVESTMENT ADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATED PERSONS
-----------------------------------------------------------------------
Under the Fund's Investment Advisory and Management Agreement (the "Management
Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund
agrees to pay the Adviser a monthly fee at an annual rate equal to 1.30% of the
first $150,000,000 of the Fund's average weekly net assets, 1.25% of such
assets over $150,000,000 and up to and including $300,000,000, and 1.20% of
such assets in excess of $300,000,000. For the year ended December 31, 1994,
the fee pursuant to the Management Agreement amounted to $4,371,086.
The Adviser has entered into a Research and Advisory Agreement (the "Advisory
Agreement") with Banco Icatu S/A (the "Brazilian Adviser"), whereby the
Brazilian Adviser provides such investment advice, research, and assistance as
the Adviser may from time to time reasonably request. Under the Advisory
Agreement, the Adviser pays the Brazilian Adviser a monthly fee, equal to 0.25%
of the first $150,000,000 of the Fund's average weekly net assets, 0.15% of
such assets over $150,000,000 and up to and including $300,000,000, and 0.05%
of such assets over $300,000,000. Effective November 1, 1994, the Brazilian
Adviser has agreed to waive approximately one half of their fees. The Adviser
has agreed to pass this waiver through to the Fund and has reduced its fees
accordingly. For the year ended December 31, 1994, the fee pursuant to the
Advisory Agreement aggregated $617,844, of which $55,048 was waived and
reflected as a reduction of the management fee.
F-23
<PAGE>
The Fund and the Adviser entered into an Administration Agreement with Banco de
Boston S.A. ("Banco de Boston"), pursuant to which Banco de Boston acts as the
Fund's Brazilian Administrator. The Fund has agreed to pay Banco de Boston, for
services rendered, an annual fee payable quarterly in Brazilian currency equal
to $50,000 per year plus out of pocket expenses. For the year ended December
31, 1994, the Administrator fee amounted to $52,961.
The Fund pays each Director not affiliated with the Adviser an annual fee of
$4,500 except for two Directors who, as residents of Brazil, receive a fee of
$9,000, plus specified amounts for each Board of Directors or committee meeting
attended. Effective August 1, 1994, the Fund pays each Director not affiliated
with the Adviser an annual fee of $6,000 except for two Directors who, as
residents of Brazil, receive a fee of $12,000, plus specified amounts for each
Board of Directors or committee meeting attended. For the year ended December
31, 1994, Directors' fees and expenses amounted to $84,504, of which $4,886 is
unpaid at December 31, 1994.
D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL
--------------------------------------------------
Investing in Brazil may involve considerations not typically associated with
investing in securities issued by domestic companies such as more volatile
prices and less liquid securities.
The Brazilian Government has exercised and continues to exercise substantial
influence over many aspects of the private sector by legislation and
regulation, including regulation of prices and wages.
Brazilian law imposes certain limitations and controls which generally affect
foreign investors in Brazil. The Fund has obtained from the Brazilian
Securities Commission authorization, subject to certain restrictions, to invest
in Brazilian securities. Under current Brazilian law, the Fund may repatriate
income received from dividends and interest earned on, and net realized capital
gain from, its investments in Brazilian securities. Under its authorization,
the Fund may also repatriate capital, but only to the extent necessary to
distribute income and capital gains (as computed for U.S. federal income tax
purposes), to pay expenses incurred outside of Brazil, to repay borrowings made
for temporary or emergency purposes, and in connection with the termination of
the Fund (provided that the Fund's dissolution has been approved by holders of
at least two-thirds of the Fund's shares). Under current Brazilian law,
whenever there occurs a serious imbalance in Brazil's balance of payments or
serious reasons to foresee the imminence of such an imbalance, Brazil's
National Monetary Council may, for a limited period, impose restrictions on
foreign capital remittances abroad. Exchange control regulations, which may
restrict repatriation of investment income, capital or the proceeds of
securities sales by foreign investors, may limit the Fund's ability to make
sufficient distributions, within applicable time periods, to qualify for the
favorable U.S. tax treatment afforded to regulated investment companies.
The Fund is unable to predict whether further economic reforms or modifications
to the existing policies by the Brazilian Government may adversely affect the
liquidity of the Brazilian stock market in the future.
F-24
<PAGE>
E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
--------------------------------------------------------
<TABLE>
<CAPTION>
NET GAIN (LOSS) NET INCREASE
ON INVESTMENT AND (DECREASE)
FOREIGN CURRENCY IN NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING
INCOME INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
--------------- ---------------- --------------- ---------------
PER PER PER PER
1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, $ 1,119 $ .09 $ (373) $ (.03) $ 83,849 $ 6.93 $ 83,476 $ 6.90
June 30, 986 .08 (133) (.01) (62,259) (5.15) (62,392) (5.16)
September 30, 1,017 .09 (503) (.04) 182,768 15.11 182,265 15.07
December 31, 829 .07 (1,001) (.09) (50,068) (4.14) (51,069) (4.23)
------- ------ -------- ------ -------- ------ -------- ------
Totals $ 3,951 $ .33 $ (2,010) $ (.17) $154,290 $12.75 $152,280 $12.58
======= ====== ======== ====== ======== ====== ======== ======
PER PER PER PER
1993 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ----- ----- ----- ----- ----- ----- ----- -----
March 31, $ 1,180 $ .10 $ 245 $ .02 $ 28,741 $ 2.38 $ 28,986 $ 2.40
June 30, 3,097 .26 1,757 .15 23,242 1.92 24,999 2.07
September 30, 3,985 .33 2,526 .21 29,066 2.41 31,592 2.62
December 31, (2,135) (.18) (3,296) (.28) 10,458 .87 7,162 .59
------- ------ -------- ------ -------- ------ -------- ------
Totals $ 6,127 $ .51 $ 1,232 $ .10 $ 91,507 $ 7.58 $ 92,739 $ 7.68
======= ====== ======== ====== ======== ====== ======== ======
</TABLE>
F-25
<PAGE>
THE BRAZIL FUND, INC.
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS
The following Financial Statements have been included as part of Item 23:
(i) -- Investment Portfolio as of December 31, 1994 and June 30, 1995
(ii) -- Statement of Assets and Liabilities as of December 31, 1994
and June 30, 1995
(iii) -- Statement of Operations for the year ended December 31, 1994
and the six months ended June 30, 1995
(iv) -- Statements of Changes in Net Assets for the year ended
December 31, 1994 and for the six months ended June 30, 1995
(v) -- Financial Highlights for each of the years ended December 31,
1990 through 1994 and for the six months ended June 30, 1995
(vi) -- Notes of Financial Statements for the year ended December 31,
1994 and the six months ended June 30, 1995
(vii) -- Report of Independent Accountants
(2) EXHIBITS
a. (i) -- Articles of Incorporation dated September 25, 1987.
(Incorporated by reference to Exhibit 1 to the Fund's original
Registration Statement on Form N-2, Registration No. 33-18274
(the "Registration Statement").)
a. (ii) -- Amendment to Articles of Incorporation dated November 21, 1990.
(Incorporated by reference to Exhibit 1(b) to Amendment No. 5
to the Registration Statement ("Amendment No. 5").)
b. (i) -- By-Laws dated October 26, 1987. (Incorporated by reference to
Exhibit (2)(a) to the Registration Statement.)
b. (ii) -- Amendment to By-Laws dated November 28, 1989. (Incorporated by
reference to Exhibit (2)(b) to Amendment No. 4 to the
Registration Statement ("Amendment No. 4.").)
b. (iii) -- Amendment to By-Laws dated February 22, 1990. (Incorporated by
reference to Exhibit (2)(c) to Amendment No. 4.)
b. (iv) -- Amendment to By-Laws dated May 30, 1991. (Incorporated by
reference to Exhibit 2(d) to Amendment No. 6 to the
Registration Statement.)
c. -- Not applicable.
d. -- Specimen certificate representing shares of Common Stock, $.01
par value per share. (Incorporated by reference to Exhibit 4 to
Amendment No. 3 to the Registration Statement ("Amendment No.
3").)
<PAGE>
e. -- Amended Dividend Reinvestment and Cash Purchase Plan dated July
26, 1990. (Incorporated by reference to Exhibit 10 to Amendment
No. 5.)
f. -- Not applicable.
g. (i) -- Investment Advisory, Management and Administration Agreement,
dated July 26, 1995, between the Fund and the Manager.
g. (ii) -- Research and Advisory Agreement, dated July 26, 1995, between
the Manager and the Brazilian Adviser.
g. (iii) -- Administration Agreement, dated April 30, 1992, between the
Manager and the Brazilian Adviser.
h. (i) -- Form of Dealer Manager Agreement.*
h. (ii) -- Form of Soliciting Dealer Agreement.*
i. -- Not applicable.
j. (i) -- Custodian Agreement (the "Custodian Agreement"), dated March
30, 1988, between the Fund and Brown Brothers Harriman & Co.
(the "Custodian"). (Incorporated by reference to Exhibit
9(a)(1) to the Registration Statement.)
j. (ii) -- Fee Schedule relating to the Custodian Agreement. (Incorporated
by reference to Exhibit 9(a)(2) to Amendment No. 3.)
j. (iii) -- Subcustodian Agreement, dated March 30, 1988, between the
Custodian and The First National Bank of Boston. (Incorporated
by reference to Exhibit 9(b)(1) to the Registration Statement.)
k. (i) -- Form of Subscription Agent Agreement.*
k. (ii) -- Form of Information Agent Agreement.*
l. -- Opinion of Debevoise & Plimpton, and consent to use of same.*
m. -- Not applicable.
n. (i) -- Opinion of Pinheiro Neto, and consent to use of same.*
n. (ii) -- Consent of Price Waterhouse LLP.
n. (iii) -- Approval of the CVM in connection with the issuance of
additional Shares.*
o. -- Not applicable.
p. -- Subscription Agreement, dated November 4, 1987, between the
Fund and the Manager. (Incorporated by reference to Exhibit 14
to the Registration Statement.)
q. -- Not applicable.
r. -- Financial Data Schedule.
Other Exhibit: Powers of Attorney
-----------------------------
* To be filed by amendment
II-2
<PAGE>
Other Exhibit: Powers of Attorney.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits h(i) and h(ii) to this Amendment No. 7.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fees.......................................... $
Stock exchange listing fees.................................... $
NASD fees...................................................... $
Printing (other than stock certificates) and related delivery
expenses..................................................... $
Dealer Manager expense reimbursement........................... $
Information Agent's fees and expenses.......................... $
Subscription Agent's fees and expenses......................... $
Fees and expenses of qualification under state securities
laws (including fees of counsel)............................. $
Accounting fees and expenses................................... $
Legal fees and expenses........................................ $
Miscellaneous.................................................. $
Total.................................................. $
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.01 per share; ______ record holders as of
___, 1995
ITEM 29. INDEMNIFICATION
The information under Item 3 of Part II of Amendment No. 5 is herein
incorporated by reference. See "The Offer -- Distribution Arrangements" in the
Prospectus.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to the directors and officers of the Manager and the
Brazilian Adviser, File Nos. 801-252 and 801-31511, respectively, is included in
their respective Forms ADV filed with the Commission and is incorporated herein
by reference thereto.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by Scudder, Stevens, & Clark, Inc., 345 Park Avenue, New York, New
York 10154. Records relating to the duties of the registrant's custodian are
maintained by Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, and those relating to the duties of the transfer agent are
maintained by The First National Bank of Boston, P.O. Box 644, Boston,
Massachusetts 02102-0644.
II-3
<PAGE>
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its prospectus contained herein if (1) subsequent to
the effective date of this Registration Statement, its net asset value
per share declines more than 10 percent from its net asset value per
share as of the effective date of this Registration Statement, or (2)
its net asset value increases to an amount greater than its net
proceeds as stated in the prospectus contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415, a post-effective amendment to the
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
(d) Registrant hereby undertakes to send by first-class mail or other
means designed to ensure equally prompt delivery, within two business
days of receipt of a written or oral request, a Statement of
Additional Information.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON
THE 12TH DAY OF OCTOBER, 1995.
THE BRAZIL FUND, INC.
By /s/ Juris Padegs
----------------------------------------
Juris Padegs
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Juris Padegs Chairman of the Board
- ------------------------- (Principal Executive Officer) October 12, 1995
Juris Padegs and Director
/s/ Edward J. O'Connell Treasurer (Principal
- ------------------------- Financial and October 12, 1995
Edward J. O'Connell Accounting Officer)
*
- ------------------------- President and Director October 12, 1995
Nicholas Bratt
*
- ------------------------- Director October 12, 1995
Edgar R. Fiedler
*
- ------------------------- Director October 12, 1995
Wilson Nolen
* Director and Resident
- ------------------------- Brazilian Director October 12, 1995
Ronaldo A. da Frota Nogueira
* Director and Resident
- ------------------------- Brazilian Director October 12, 1995
Roberto Teixeira da Costa
*
- ------------------------- Director October 12, 1995
Edmond D. Villani
*By /s/ Juris Padegs October 12, 1995
----------------
Juris Padegs, Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Pages
- ------- ----------- ------------
<C> <C> <S> <C>
a. (i) -- Articles of Incorporation dated September 25, 1987.
(Incorporated by reference to Exhibit 1 to the Fund's
original Registration Statement on Form N-2, Registration
No. 33-18274 (the "Registration Statement").)
a. (ii) -- Amendment to Articles of Incorporation dated November 21,
1990. (Incorporated by reference to Exhibit 1(b) to
Amendment No. 5 to the Registration Statement ("Amendment
No. 5").)
b. (i) -- By-Laws dated October 26, 1987. (Incorporated by reference
to Exhibit (2)(a) to the Registration Statement.)
b. (ii) -- Amendment to By-Laws dated November 28, 1989. (Incorporated
by reference to Exhibit (2)(b) to Amendment No. 4 to the
Registration Statement ("Amendment No. 4.").)
b. (iii) -- Amendment to By-Laws dated February 22, 1990. (Incorporated
by reference to Exhibit (2)(c) to Amendment No. 4.)
b. (iv) -- Amendment to By-Laws dated May 30, 1991. (Incorporated by
reference to Exhibit 2(d) to Amendment No. 6 to the
Registration Statement.)
c. -- Not applicable.
d. -- Specimen certificate representing shares of Common Stock,
$.01 par value per share. (Incorporated by reference to
Exhibit 4 to Amendment No. 3 to the Registration Statement
("Amendment No. 3").)
e. -- Amended Dividend Reinvestment and Cash Purchase Plan dated
July 26, 1990. (Incorporated by reference to Exhibit 10 to
Amendment No. 5.)
f. -- Not applicable.
g. (i) -- Investment Advisory, Management and Administration
Agreement, dated July 26, 1995, between the Fund and the
Manager.
g. (ii) -- Research and Advisory Agreement, dated July 26, 1995,
between the Manager and the Brazilian Adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S>
g. (iii) -- Administration Agreement, dated April 30, 1992, between the
Manager and the Brazilian Adviser.
h. (i) -- Form of Dealer Manager Agreement./*/
h. (ii) -- Form of Soliciting Dealer Agreement./*/
i. -- Not applicable.
j. (i) -- Custodian Agreement (the "Custodian Agreement"), dated
March 30, 1988, between the Fund and Brown Brothers
Harriman & Co. (the "Custodian"). (Incorporated by
reference to Exhibit 9(a)(1) to the Registration
Statement.)
j. (ii) -- Fee Schedule relating to the Custodian Agreement.
(Incorporated by reference to Exhibit 9(a)(2) to Amendment
No. 3.)
j. (iii) -- Subcustodian Agreement, dated March 30, 1988, between the
Custodian and The First National Bank of Boston.
(Incorporated by reference to Exhibit 9(b)(1) to the
Registration Statement.)
k. (i) -- Form of Subscription Agent Agreement./*/
k. (ii) -- Form of Information Agent Agreement./*/
l. -- Opinion of Debevoise & Plimpton, and consent to use of
same./*/
m. -- Not applicable.
n. (i) -- Opinion of Pinheiro Neto, and consent to use of same./*/
n. (ii) -- Consent of Price Waterhouse LLP.
n. (iii) -- [Approval of the CVM in connection with the issuance of
additional Shares.]
o. -- Not applicable.
p. -- Subscription Agreement, dated November 4, 1987, between the
Fund and the Manager. (Incorporated by reference to Exhibit
14 to the Registration Statement.)
q. -- Not applicable.
r. -- Financial Data Schedule.
Other Exhibit: Powers of Attorney.
</TABLE>
------------------------
* To be filed by amendment
<PAGE>
EXHIBIT 99(g)(i)
INVESTMENT ADVISORY, MANAGEMENT AND
ADMINISTRATION AGREEMENT
AGREEMENT, dated and effective as of July 26, 1995 between THE BRAZIL FUND,
INC., a Maryland corporation (herein referred to as the "Fund"), and SCUDDER,
STEVENS & CLARK, INC., a Delaware corporation (herein referred to as the
"Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is agreed by
the parties as follows:
1. The Manager hereby undertakes and agrees, upon the terms and conditions
herein set forth, (i) to make investment decisions for the Fund, to prepare and
make available to the Fund research and statistical data in connection therewith
and to supervise the acquisition and disposition of securities by the Fund,
including the selection of brokers or dealers to carry out the transactions, all
in accordance with the Fund's investment objectives and policies and in
accordance with guidelines and directions from the Fund's Board of Directors;
(ii) to assist the Fund as it may reasonably request in the conduct of the
Fund's business, subject to the direction and control of the Fund's Board of
Directors; (iii) to maintain or cause to be maintained for the Fund all books
and records required under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to furnish or cause to be furnished all required reports or
other information under Brazilian securities laws, to the extent that such
books, records and reports and other information are not maintained or furnished
by the Custodian or other agents of the Fund; (iv) to furnish at the Manager's
expense for the use of the Fund such office space and facilities as the Fund may
require for its reasonable needs in the City of New York and to furnish at the
Manager's expense clerical services in the United States related to research,
statistical and investment work; (v) to render to the Fund administrative
services such as preparing reports to and meeting materials for the Fund's Board
of Directors and reports and notices to stockholders, preparing and making
filings with the Securities and Exchange Commission (the "SEC") and other
regulatory and self-regulatory organizations, including preliminary and
definitive proxy materials and post-effective amendments to the Fund's
Registration Statement, providing assistance in certain accounting and tax
matters and investor and public relations, monitoring the valuation of portfolio
securities, calculation of net asset value and calculation and payment of
distributions to stockholders, and overseeing arrangements with the Fund's
custodian, including the maintenance of books and records of the Fund; and (vi)
to pay the reasonable salaries, fees and expenses of such of
<PAGE>
the Fund's officers and employees (including the Fund's shares of payroll taxes)
and any fees and expenses of such of the Fund's directors as are directors,
officers or employees of the Manager; provided, however, that the Fund, and not
-------- -------
the Manager, shall bear travel expenses (or an appropriate portion thereof) of
directors and officers of the Fund who are directors, officers or employees of
the Manager to the extent that such expenses relate to attendance at meetings of
the Board of Directors of the Fund or any committees thereof or advisers
thereto. The Manager shall bear all expenses arising out of its duties hereunder
but shall not be responsible for any expenses of the Fund other than those
specifically allocated to the Manager in this paragraph 1. In particular, but
without limiting the generality of the foregoing, the Manager shall not be
responsible, except to the extent of the reasonable compensation of such of the
Fund's employees as are directors, officers or employees of the Manager whose
services may be involved, for the following expenses of the Fund: organization
and certain offering expenses of the Fund including out-of-pocket expenses, but
not including overhead or employee costs of the Manager or of any one or more
organizations retained by the Fund or by the Manager as a Brazilian
administrator or adviser of the Fund (together, the "Brazilian Advisers"));
legal expenses; auditing and accounting expenses; telephone, telex, facsimile,
postage and other communication expenses; taxes and governmental fees; stock
exchange listing fees; fees, dues and expenses incurred by the Fund in
connection with membership in investment company trade organizations; fees and
expenses of the Fund's custodians, subcustodians, transfer agents and
registrars; payment for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and other expenses in connection with the issuance,
offering, distribution, sale or underwriting of securities issued by the Fund;
expenses of registering or qualifying securities of the Fund for sale; expenses
relating to investor and public relations; freight, insurance and other charges
in connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of preparing and distributing reports, notices and
dividends to stockholders; costs of stationery; costs of stockholders' and other
meetings; litigation expenses; or expenses relating to the Fund's dividend
reinvestment and cash purchase plan (except for brokerage expenses paid by
participants in such plan).
2. In connection with the rendering of the services required under paragraph
1, the Fund and the Manager have entered into an agreement dated April 30, 1992
with Banco de Boston S.A. to furnish administrative and economic advisory
services to the Manager pursuant to such agreement, as well as an agreement
dated July 26, 1995 with Banco Icatu S.A. to furnish investment advisory
services to the Manager pursuant to such agreement. The Manager may also
contract with or consult with such banks, other securities firms or other
parties in Brazil or elsewhere as it may deem appropriate
<PAGE>
to obtain information and advice, including investment recommendations, advice
regarding economic factors and trends, advice as to currency exchange matters,
and clerical and accounting services and other assistance, but any fee,
compensation or expenses to be paid to any such parties shall be paid by the
Manager, and no obligation shall be incurred on the Fund's behalf in any such
respect.
3. The Fund agrees to pay to the Manager in United States dollars, as full
compensation for the services to be rendered and expenses to be borne by the
Manager hereunder, a monthly fee, which, on an annual basis, is equal to 1.175%
per annum of the value of the Fund's average weekly net assets. Each payment of
a monthly fee to the Manager shall be made within the ten days next following
the day as of which such payment is so computed.
The value of the net assets of the Fund shall be determined pursuant to the
applicable provisions of the Articles of Incorporation and By-laws of the Fund.
4. The Manager agrees that it will not make a short sale of any capital
stock of the Fund or purchase any share of the capital stock of the Fund
otherwise than for investment.
5. Nothing herein shall be construed as prohibiting the Manager from
providing investment advisory services to, or entering into investment advisory
agreements with, other clients (including other registered investment
companies), including clients which may invest in securities of Brazilian
issuers, or from utilizing (in providing such services) information furnished to
the Manager by any Brazilian Adviser and others as contemplated by sections 1
and 2 of this Agreement; nor shall anything herein be construed as constituting
the Manager an agent of the Fund.
6. The Manager may rely on information reasonably believed by it to be
accurate and reliable. Neither the Manager nor its officers, directors,
employees or agents shall be subject to any liability for any act or omission,
error of judgment or mistake of law, or for any loss suffered by the Fund, in
the course of, connected with or arising out of any services to be rendered
hereunder, except by reason of willful misfeasance, bad faith, or gross
negligence on the part of the Manager in the performance of its duties or by
reason of reckless disregard on the part of the Manager of its obligations and
duties under this Agreement. Any person, even though also employed by the
Manager, who may be or become an employee of the Fund and paid by the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to be
acting in such employment solely for the Fund and not as an employee or agent of
the Manager.
7. This Agreement shall remain in effect for a period of two years from the
date hereof, and shall continue in effect thereafter, but only so long as such
continuance is specifically approved at least annually
<PAGE>
by the affirmative vote of (i) a majority of the members of the Fund's Board of
Directors who are not interested persons of the Fund or of the Manager or of any
entity regularly furnishing investment advisory services with respect to the
Fund pursuant to an agreement with the Fund or the Manager, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) a majority
of the Fund's Board of Directors or the holders of a majority of the outstanding
voting securities of the Fund. This Agreement may nevertheless be terminated at
any time without penalty, on 60 days' written notice, by the Fund's Board of
Directors, by vote of holders of a majority of the outstanding voting securities
of the Fund, or by the Manager, but only after written notice to the Fund and to
the Comissao de Valores Mobiliarios of not less than 60 days (or such longer
period as may be required under the Regulations attached as Annex III to the
National Monetary Council Resolution No. 1,289 of March 20, 1987). This
Agreement shall automatically be terminated in the event of its assignment,
provided that an assignment to a corporate successor to all or substantially all
- --------
of the Manager's business or to a wholly-owned subsidiary of such corporate
successor which does not result in a change of actual control or management of
the Manager's business shall not be deemed to be an assignment for the purposes
of this Agreement. Any such notice shall be deemed given when received by the
addressee.
8. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by either party hereto, except as permitted under the
1940 Act. It may be amended by mutual agreement, but only after authorization of
such amendment by the affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of the members of
the Fund's Board of Directors who are not interested persons of the Fund or of
the Manager or of any entity regularly furnishing investment advisory services
with respect to the Fund pursuant to an agreement with the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such approval.
9. This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act. As used herein, the terms "interested
person," "assignment," and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
<PAGE>
THE BRAZIL FUND, INC.
By:
------------------------------
Title: President
SCUDDER, STEVENS & CLARK, INC.
By:
------------------------------
Title: Managing Director
<PAGE>
EXHIBIT 99(g)(ii)
SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
RESEARCH AND ADVISORY AGREEMENT
-------------------------------
July 26, 1995
Banco Icatu S.A.
Av. Presidente Wilson
231 2/o/ andar
Rio de Janeiro, Brazil
CEP: 20030 021
Dear Sirs:
Scudder, Stevens & Clark, Inc. (the "Manager") has entered into an
Investment Advisory, Management and Administration Agreement (the "Management
Agreement") dated as of July 26, 1995 with The Brazil Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which the Manager is to act as investment
adviser to and manager of the Fund. A copy of the Management Agreement has been
previously furnished to you.
The Manager wishes to avail itself of your investment advisory services.
Accordingly, the Manager, with the acceptance of the Fund, hereby agrees with
you as follows for the duration of this Agreement:
1. The Manager hereby contracts with you for the maintenance of the
technical department specialized in the analysis of stocks and securities
contemplated by Paragraph 1 of Article 4 of the Regulations attached as Annex
III to the National Monetary Council Resolution No. 1,289 of March 20, 1987 (the
"Regulations"). The Manager hereby directs that in so acting, you shall give all
advice solely to, and take all instructions solely from, the Manager.
2. You agree to furnish to the Manager such information, investment
recommendations, advice and assistance, as the Manager shall from time to time
reasonably request. In that connection, you agree to continue to maintain within
your organization a technical department specialized in the analysis of stocks
and securities to furnish such services exclusively to the Manager. Attached is
a copy of a memorandum describing the proposed working procedures to be followed
by you in working with the Manager, which may be revised by mutual agreement as
you work with the Manager pursuant to this Agreement. In addition, for the
benefit of the Fund, you agree to pay the fees and expenses of any directors or
officers of the Fund who are directors, officers or employees of you or of any
of your affiliates.
3. The Manager agrees to pay or to cause to be paid to you, as full
compensation for the services to be rendered and expenses to be borne by you
hereunder, a monthly fee in BRLs, which, on an annual basis, is equal to 0.125%
per annum of the value of the Fund's average weekly net assets up to and
including US$150 million; 0.075% per annum of the value of the Fund's average
weekly net assets over US$150 million and up to and including US$300 million;
and 0.025% per annum of the value of the Fund's average weekly net assets in
excess of US$300 million. Each payment of a monthly fee shall be made to you
within the fifteen days next following the day as of which such payment is so
computed.
The value of the net assets of the Fund shall be determined pursuant to the
applicable
<PAGE>
provisions of the Certificate of Incorporation and By-Laws of the Fund.
4. You agree that you will not make a short sale of any capital stock of the
Fund, or purchase any share of the capital stock of the Fund otherwise than for
investment.
5. Your services to the Manager are not to be deemed exclusive and you are
free to render similar services to others, except as otherwise provided in
Section 2 hereof.
6. Nothing herein shall be construed as constituting you an agent of the
Manager or of the Fund.
7. You represent and warrant that you are registered as an investment
adviser under the U.S. Investment Advisers Act of 1940, as amended, and will
comply with such Act and the U.S. Investment Company Act of 1940, as amended,
and the rules thereunder. You agree to maintain such registration in effect
during the term of this Agreement. You further represent and warrant that you
are accredited by the Comissao de Valores Mobiliarios ("CVM") within the meaning
of Paragraph 1 of Article 4 of the Regulations. You agree to use your best
efforts to maintain such accreditation in effect during the term of this
Agreement. You further agree to comply with the Regulations and all other
applicable laws and regulations in performing your obligations hereunder.
8. Neither you nor any affiliate of yours shall receive any compensation in
connection with the placement or execution of any transaction for the purchase
or sale of securities or for the investment of funds on behalf of the Fund,
except that you or your affiliates may receive a commission, fee or other
remuneration for acting as broker in connection with the sale of securities to
or by the Fund, if permitted under the U.S. Investment Company Act of 1940, as
amended.
9. You represent and warrant to the Manager that there is no publicly held
company which is an affiliated person (as defined in the U.S. Investment Company
Act of 1940, as amended), or an affiliated person of an affiliated person, of
yours. You will advise the Manager immediately if any publicly held company is
an affiliated person, or an affiliated person of an affiliated person, of yours
10. You will advise the Manager as soon as possible if, to the best of your
knowledge, any publicly held company is an affiliated person (within the meaning
of Articles 29(vii) and 32 of the Regulations) of Banco de Boston (the
"Brazilian Administrator") or of a company affiliated with the Brazilian
Administrator.
11. The Manager agrees that you may rely on information reasonably believed
by you to be accurate and reliable, and further agrees that, except to the
extent otherwise provided under applicable Brazilian law, neither you nor your
officers, directors, employees or agents shall be subject to any liability for
any act or omission in the course of, connected with or arising out of any
services to be rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties or by reason of
reckless disregard of your obligations and duties under this Agreement.
12. This Agreement shall remain in effect for a period of two years from the
date hereof and shall continue in effect thereafter, but only so long as such
continuance is specifically approved at least annually by the affirmative vote
of (i) a majority of the members of the Fund's Board of Directors who are not
interested persons of the Fund, the Manager, or you, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) a majority of the
Fund's Board of Directors or the holders of a majority of the outstanding voting
securities of the Fund. This Agreement may nevertheless be terminated at any
time, without penalty, by the Fund's Board of Directors or by vote of holders of
a majority of the outstanding voting securities of the Fund, upon 60 days'
written notice delivered or sent by registered mail, postage prepaid, to you, at
your
<PAGE>
address given above or at any other address of which you shall have notified us
in writing, or by you, but only after written notice to the Fund, the Manager,
and the CVM, of not less than 60 days (or such longer period as may be required
under the Regulations). This Agreement shall automatically be terminated in the
event of its assignment or of the termination (due to assignment or otherwise)
of the Management Agreement.
13. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by either party hereto. It may be amended by mutual
agreement, but only after authorization of such amendment by the affirmative
vote of (i) the holders of a majority of the outstanding voting securities of
the Fund; and (ii) a majority of the members of the Fund's Board of Directors
who are not interested persons of the Fund, the Manager, or you, cast in person
at a meeting called for the purpose of voting on such approval.
14. Any notice hereunder shall be in writing and shall be delivered in
person or by facsimile (followed by mailing such notice, air mail postage paid,
the day on which such facsimile is sent)
Addressed
If to the Fund, to:
The Brazil Fund, Inc.
345 Park Avenue
New York, NY 10154
Attention: President
(Facsimile No. 212-223-3127)
If to the Manager, to:
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Attention: President
(Facsimile No. 212-319-7813)
If to you, to:
Banco Icatu S.A.
Av. Presidente Wilson
231 2/o/ andar
Rio de Janeiro, Brazil
CEP: 20030 021
Attention: President
(Facsimile No. 021-240-4133)
or to such other address as to which the recipient shall have informed the other
party.
Notice given as provided above shall be deemed to have been given, if by
personal delivery, on the day of such delivery, and if by facsimile and mail,
the date on which such facsimile and confirmatory letter are sent.
15. This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the U.S. Investment Company Act of 1940, as amended, or
the Regulations. As used herein the terms "interested person," assignment," and
"vote of a majority of the outstanding voting securities" shall have the
meanings set forth in the U.S. Investment Company Act of 1940, as amended.
If you are in agreement with the foregoing, please sign the form of
acceptance on
<PAGE>
the enclosed counterpart hereof and return the same to us.
Very truly yours,
SCUDDER, STEVENS & CLARK, INC.
By
---------------------------------
Managing Director
The foregoing agreement is hereby
accepted as of the date first above
written.
Banco Icatu S.A.
By
---------------------------------
Director
By
---------------------------------
Director
Accepted:
THE BRAZIL FUND, INC.
By
-------------------------------
President
<PAGE>
EXHIBIT 99(g)(iii)
EXECUTION COPY
The Brazil Fund, Inc.
345 Park Avenue
New York, New York 10154
A d m i n i s t r a t i o n A g r e e m e n t
Banco de Boston S.A.
Rua Libero Badaro, 501 - Parte
Sao Paulo - SP - Brazil
The Brazil Fund, Inc., a Maryland corporation (the "Fund"), has entered into an
Investment Advisory and Management Agreement (the "Management Agreement") dated
as of March 30, 1988 with Scudder, Stevens & Clark, Inc. (the "Manager"),
pursuant to which the Manager is to act as investment adviser to and manager of
the Fund. A copy of the Management Agreement has been previously furnished to
you. Given your authorization by the Commissao de Valores Mobiliarios (the
"CVM"), as required by the Regulations attached as Annex III to the National
Monetary Council Resolution no. 1,289 of March 20, 1987 (the "Regulations"), the
Fund and the Manager, wish to avail themselves of your administrative services.
Accordingly, the Fund and the Manager hereby agree with you as follows for the
duration of this Agreement:
1- The Fund and the Manager hereby appoint you as the Brazilian administrator of
the Fund's Brazilian portfolio. The Fund hereby authorizes the Manager as its
agent to act on the Fund's behalf, and to give you instructions, under this
Agreement.
2- You agree to furnish to the Fund and to the Manager such administrative
services and assistance as are required to be furnished by you pursuant to the
Regulations as the Brazilian administrator of the Fund's Brazilian portfolio and
as the Manager, on the Fund's behalf, shall from time to time reasonably
request, including, without limitation, (i) effecting the registration of the
Fund's foreign capital, (ii) processing, on behalf, of the Fund, remittances of
earnings, capital gains and the return of invested capital, (iii) paying, on
behalf of the Fund, Brazilian income taxes due on its earnings remitted abroad,
(iv) filing the statements required by the Regulations (in a form and manner to
be discussed in advance with the Manager) on the composition and value of the
Fund's portfolio in Brazil and
1
<PAGE>
its remittances of earnings, capital gains and any partial or total liquidations
of its investments, and (v) handle the bookkeeping for the Fund's portfolio in
Brazil, all as more fully set forth in the Regulations. With the prior approval
of the Manager, third parties may assist you in performing your services under
this Agreement to the extent permitted by the Regulations. You will not be
required to maintain a technical department specialized in the analysis of
stocks and securities for the Fund's portfolio, since the Manager has contracted
for such services to be performed by another party pursuant to a Research and
Advisory Agreement dated March 30, 1988. You shall not be required to furnish
advice or make recommendations regarding the purchase or sale of securities.
3- During the term of this Agreement, one of your directors shall be directly
responsible for the administration of the Fund's Brazilian portfolio as
contemplated by the Regulations (that is, shall be responsible to see to it
that you carry out the administrative functions enumerated in clauses (i)
through (v) of paragraph 2). Your director who shall so act initially is Eduardo
Aguinaga de Moraes. You will give us any and all notices required by the
Regulations in respect of replacement of such director.
4- The Fund agrees to pay you, as full compensation for the services to be
rendered, a fee in Brazilian currency equal to US$ 50,000 per year, payable
quarterly in arrears. The quarterly payments in Brazilian Currency to be paid to
you hereunder shall be calculated according to the following formula:
50,000 Im
F = ------ x Dm x (1 + ---) to the 3/2 power
4 100
Where:
F = fee in Brazilian currency payable quarterly.
Dm = The commercial average buying rate for one US dollar during the quarter for
which the fee is calculated as established by the Central Bank of Brazil,
through the SISSACEN System, transaction PTAX-800 OPTION 5.
2
<PAGE>
Im = the average rate of inflation for each month in the quarter for which the
fee is calculated, as published in the Brazilian Consumer Price Index.
4.1-The Fund further agrees to reimburse you for all out-of-pocket expenses
(including but not limited to fax, mail, telefone and translation expenses)
incurred in the performance of your functions as Administrator and/or any
actions undertaken pursuant to the Fund's instructions.
5- You agree that you will not make a short sale of any capital stock of the
Fund, or purchase any share of the capital stock of the Fund otherwise than for
investment.
6- You services to the Fund and the Manager are not to be deemed exclusive and
you are free to render similar services to others, except as otherwise provided
herein.
7- Nothing herein shall be construed as constituting you an agent of the Fund or
the Manager.
8- You represent and warrant that you have been authorized by the CVM to engage
in the activities described in Article 23 of Law No. 6,385 of December 7, 1976
and to enter into this Agreement, and that you satisfy the requisite
qualifications under Brazilian laws and regulations to act as Brazilian
administrator of the Fund's portfolio, including having at least the minimum net
worth referred to in Section 5 of the Regulations. You agree to use your best
efforts to maintain such authorization in effect and to maintain the requisite
minimum net worth during the term of this Agreement, including, without
limitation, complying with the Regulations and all other applicable laws and
regulations in performing your obligations under this Agreement.
9- Neither you nor any affiliate of yours shall receive any compensation in
connection with the placement or execution of any transaction for the purchase
or sale of securities or for the investment of funds on behalf of the Fund,
except that you or your affiliates may receive a commission, fee or other
remuneration for acting as broker in connection with the sale of securities to
or by the Fund, if permitted under
3
<PAGE>
the U.S. Investment Company Act of 1940, as amended (the "Investment Company
Act")
10- You represent and warrant to the Fund and the Manager that there is no
publicly held company whose securities the Fund is prohibited from purchasing
because such company is an affiliated person of yours, or because such
securities represent a co-obligation of yours, or of a company affiliated with
you, within the meaning of Articles 29 (vii) and 32 of the Regulations. You will
advise the Manager immediately if any publicly held company is an affiliated
person of yours, or of a company affiliated with you.
11- The Fund and the Manager agree that you may rely on information reasonably
believed by you to be accurate and reliable. The Fund and the Manager further
agree that, except to the extent otherwise provided under applicable Brazilian
law, neither you nor your officers, directors, employees or agents shall be
subject to any liability for any act or omission in the course of, connected
with or arising out of any services to be rendered hereunder, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of your
duties or by reason of reckless disregard of your obligations and duties under
this Agreement.
12- This Agreement shall remain in effect for a period of two years from the
date hereof and shall continue in effect thereafter until termination in
accordance with the terms of this Section, provided that such continuance is
specifically approved at least annually by the affirmative vote of the Fund's
Board of Directors. This Agreement may nevertheless be terminated at any time,
without penalty, by the Manager, by the Fund's Board of Directors or by vote of
holders of a majority of the outstanding voting securities of the Fund, upon 60
days written notice delivered or sent by registered mail, postage prepaid, to
you, at your address given above or at any other address of which you shall
have notified us in writing, or by you, but only after written notice to the
Fund, the Manager and the CVM of not less than 60 days (or such longer period as
may be required under the Regulations). This Agreement shall automatically be
terminated in the event of its assignment or of the termination (due to
assignment or otherwise) of the Management Agreement.
4
<PAGE>
13- This Agreement may not be transferred, assigned, sold of in any manner
hypothecated or pledged by either party hereto. It may be amended by mutual
agreement, but only after authorization of such amendment by the affirmative
vote of the Fund's Board of Directors.
14- Any notice hereunder shall be in writing and shall be delivered in person or
by telex (followed by mailing such notice, air mail postage paid, the day on
which such telex is sent).
- Addressed
If to the Fund, to:
The Brazil Fund Inc.
345 Park Avenue
New York, NY 10154
Attention: President
(Telex no. 710-591-2267)
If to the Manager, to:
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Attention: President
(Telex no. 710-581-2267)
If to you, to:
Banco de Boston S. A.
Rua Libero Badaro, 501 - Parte
01009 - Sao Paulo - SP
Brazil
Attention: Eduardo Aguinaga de Moraes
(Telex no. 55-11-353395)
or to such other address as to which the recipient shall have informed the other
party.
Notice given as provided above shall be deemed to have been given, if by
personal delivery, on the day of such delivery,
5
<PAGE>
and if by telex and mail, the date on which such telex and confirmatory letter
are sent.
15- This Agreement shall be construed in accordance with the laws of the State
of New York, provided, however, that nothing herein shall be construed as being
inconsistent with the Investment Company Act. Used herein the terms "investment
adviser", "assignment", and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act.
If you are in agreement with the foregoing, please sign the form of acceptance
on the enclosed counterpart hereof and return the same to us.
Very truly yours,
The Brazil Fund, Inc.
By /s/ Pamela A. McGrath
---------------------------------
Name: Pamela A. McGrath
Title: Vice President
Scudder, Stevens & Clark, Inc.
By /s/ Thomas F. McDonough
---------------------------------
Name: Thomas F. McDonough
Title: Principal
The foregoing agreement is
hereby accepted as of April
30th, 1992.
Banco de Boston S.A.
By /s/ Eduardo de Aguinaga de Moraes
------------------------------------
Name: Eduardo de Aguinaga de Moraes
Title: Vice President
By /s/ Eduardo A. G. Kiss
------------------------------------
Name: Eduardo A. G. Kiss
Title: Director
<PAGE>
EXHIBIT 99(n)(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this post-effective amendment No. 7 to the registration
statement on Form N-2 (File No. 811-5769) (the "Registration Statement") of our
reports dated August 16, 1995 and February 13, 1995, relating to the financial
statements and financial highlights of The Brazil Fund, Inc., which appear in
such Statement of Additional Information. We also consent to the references to
us under the headings "Financial Highlights" and "Experts" in the prospectus
which constitutes part of this Registration Statement.
Price Waterhouse LLP
Boston, Massachusetts
October 12, 1995
<PAGE>
EXHIBIT 99
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 12th day of October, 1995.
/s/ Nicholas Bratt
------------------
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 6th day of October, 1995.
/s/ Edmund D. Villani
----------------------------------
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 12th day of October, 1995.
/s/ Wilson Nolen
----------------
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 7th day of October, 1995.
/s/ Edgar R. Fielder
--------------------
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 9th day of October, 1995.
/s/ Ronaldo A. da Frota Nogveira
--------------------------------
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of THE BRAZIL FUND, INC., a Maryland
corporation (the "Corporation") , does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:
(a) one or more Registration Statements of the Corporation on an appropriate
form proposed to be filed with the Securities and Exchange Commission ("SEC")
for the purposes of registering shares of common stock of the Corporation, $0.01
par value (the "Securities") and rights entitling the holders of Securities to
subscribe for additional Securities ("Rights") under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;
(b) any and all supplements and amendments (including, without limitation,
post-effective amendments) to such Registration Statements;
and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agents, or any
of them, deem necessary or advisable to enable the Corporation to comply with
(a) the federal securities laws of the United States of America and the rules,
regulations and requirements of the SEC in respect to any thereof, (b) the
securities or Blue Sky laws of any state or other governmental subdivision of
the United States of America and (c) the foreign investment and securities laws
of Brazil and any other foreign jurisdiction; and the undersigned does hereby
grant unto such attorneys-in-fact, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might and
could do in person, and ratify and confirm as his own acts and deeds all that
such attorneys-in-fact and agents, and each of them, shall do or cause to be
done by virtue hereof. Each one of such attorneys-in-fact and agents shall have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney this 9th day of October, 1995.
/s/ Roberto Teixeira da Costa
-----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>This schedule contains summary financial information extracted from The
Brazil Fund, Inc. Semiannual Report for the period ended June 30, 1995 and is
qualified in its entirety by reference to such financial statements. </LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-01-1995
<INVESTMENTS-AT-COST> 131,909,286
<INVESTMENTS-AT-VALUE> 292,423,655
<RECEIVABLES> 732,160
<ASSETS-OTHER> 2,247
<OTHER-ITEMS-ASSETS> 4,806,423
<TOTAL-ASSETS> 297,964,485
<PAYABLE-FOR-SECURITIES> 86,710
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 696,522
<TOTAL-LIABILITIES> 783,232
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,385,711
<SHARES-COMMON-STOCK> 12,146,285
<SHARES-COMMON-PRIOR> 12,107,722
<ACCUMULATED-NII-CURRENT> 3,143,646
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,221,173
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 160,430,723
<NET-ASSETS> 297,181,253
<DIVIDEND-INCOME> 5,404,301
<INTEREST-INCOME> 329,470
<OTHER-INCOME> 0
<EXPENSES-NET> 2,590,125
<NET-INVESTMENT-INCOME> 3,143,646
<REALIZED-GAINS-CURRENT> 10,324,603
<APPREC-INCREASE-CURRENT> (91,065,162)
<NET-CHANGE-FROM-OPS> (77,596,913)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2,853,224)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 38,563
<NET-CHANGE-IN-ASSETS> (79,340,719)
<ACCUMULATED-NII-PRIOR> 3,143,646
<ACCUMULATED-GAINS-PRIOR> 2,749,794
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,963,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,739,696
<AVERAGE-NET-ASSETS> 310,856,892
<PER-SHARE-NAV-BEGIN> 31.10
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> (6.65)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.47
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
