The Brazil Fund, Inc.
Semiannual Report
June 30, 1996
A closed-end investment company seeking long-term capital appreciation through
investment in securities, primarily equity securities, of Brazilian issuers.
<PAGE>
The Brazil Fund, Inc.
Investment objective and policies
o long-term capital appreciation through investment primarily in equity
securities of Brazilian issuers Investment characteristics
Investment characteristics
o closed-end investment company investing in a broad spectrum of Brazilian
industries
o a vehicle for international diversification through participation in the
Brazilian economy
General Information
Executive offices
The Brazil Fund, Inc.
345 Park Avenue
New York, NY 10154
Telephone:
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend
reinvestment plan agent
For account information: 1-800-426-5523
The First National Bank of Boston
Attn. Investor Relations Department
P.O. Box 8200
Boston, MA 02266-8200
Custodian
Brown Brothers Harriman & Co.
Legal counsel
Debevoise & Plimpton
Independent Accountants
Price Waterhouse LLP
New York Stock Exchange Symbol -- BZF
In Brief 3
Letter to Shareholders 3
Investment Summary 6
Portfolio Summary 7
Investment Portfolio 8
Financial Statements 11
Financial Highlights 14
Notes to Financial Statements 15
Report of Independent Accountants 18
Dividend Reinvestment
and Cash Purchase Plan 19
Investment Manager and Administrator 21
Directors and Officers 22
This report is sent to the shareholders of The Brazil Fund, Inc. for their
information. It is not a prospectus, circular, or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
2
<PAGE>
In Brief
o The Brazil Fund, Inc. provided a 26.72% total return in net asset value for
the six months ended June 30, 1996, mirroring a strong increase in
Brazilian securities prices generally.
o The privatization this year of Light Servicos de Eletricidade, an
electricity distributor in Rio de Janeiro, is one of many such sales
underway in Brazil. Moving forward are plans to sell state controlled
banks, highways, and other assets.
o The Fund increased its investments in the electric utility industry and in
Bradesco, a prominent banking organization, while realizing tax losses on
the sale of a handful of comparatively smaller holdings.
Letter to Shareholders
Dear Shareholders:
We are pleased to report on the investment activities of The Brazil Fund,
Inc. for the six months ended June 30, 1996.
The Fund's total investment return for the period was 26.72%. Net asset
value at mid-year was $26.27 per share, and the closing price of the Fund's
shares traded on the New York Stock Exchange was $23.88 on June 30. At that
date, the Fund was selling at an approximate 10% discount to underlying net
asset value. Historical performance data for the Fund's net asset value and
share price are shown on page 6 of this report.
The improvement in the Fund's net asset value mirrored a strong increase in
securities prices generally in Brazil for the six months. The market
capitalization of the Sao Paulo Stock Exchange rose 29.5% for the period,
closing at $191.2 billion on June 30. The Sao Paulo Stock Exchange Index was up
36.22% for the six months, with the disparity in the performance of the Index
and Exchange's market capitalization once again reflecting the significant
weighting of shares of Telebras in the transaction-oriented Stock Exchange
Index. At June 30, for example, Telebras' market value was $21.0 billion, equal
to 11.0% of the stock market's total capitalization. At the same time, Telebras
accounted for 43.2% of the Sao Paulo Index.
The stock market's performance for the first half was a pleasant
counterpoint to concerns expressed by many investors over the slow pace at which
the Cardoso administration's reform program was moving through Congress. There
were also sharp criticisms lodged against the government's economic program by
several prominent academics who detected a significant risk in Brazil's reliance
on a strong -- perhaps overvalued -- exchange rate in its fight to control
inflation.
A far-reaching reform program such as the Real plan will inevitably provoke
controversy. Long-established economic and political privileges are at stake and
will be defended vigorously through the political process. Resistance to the
privatization of government-owned corporations is a case in point. The peaceful
auction this year of Electrobras' shares of the Rio de Janeiro electricity
distributor, Light Servicos de Electricidade S.A., stands in vivid contrast to
the riot outside the Rio Stock Exchange on the occasion of the privatization
auction of Usinas Siderurgicas de Minas Gerais S/A in October, 1991. The
privatization of the railroad system is moving forward with little difficulty,
and we believe the government will be able to keep to its timetable for the sale
of 45% of the voting stock of Vale do Rio Doce to private interests in the early
part of 1997. In the meantime, the state of Sao Paulo is proceeding with plans
to privatize its electric generation and distribution companies, while a number
3
<PAGE>
of other states are in varying stages of planning for the sale of
state-controlled banks, utilities, highways, and other assets.
Fund Holdings Benefit From Recent Reforms
The reform movement in Brazil is as much about deregulation as it is
privatization, and both have had a positive influence on the stock market
performance this year of the Fund's investments in the telecommunications,
electric utility and petroleum industries. Earnings for the telephone companies
and electric utilities are responding favorably to tariff increases granted in
late 1995, and there is growing optimism that Petrobras will soon be freed from
having to absorb a broad range of consumer subsidies on its fuel sales.
The Fund increased its investments in the electric utilities industry
during the period. The purchase of shares of Centrais Eletricas de Santa
Catarina S.A. brought the Fund's holdings to six companies with a market value
at June 30 of $56 million, equal to 13% of the portfolio. Celesc is the
state-controlled distribution company for Santa Catarina, a prosperous state
located to the south of Sao Paulo.
Four companies were eliminated from the portfolio. They were Serrana S.A.
(construction), Pirelli Cabos S.A. (electric and telephone cables), Sementes
Agroceres S/A (hybrid corn seed), and Mesbla S.A. (department stores).
Investments in these companies were comparatively small, and the Fund was able
to realize tax losses from their disposal.
Success of the Real
The Brazilian government continues to maintain a tight monetary policy in
an effort to ratchet the inflation rate down and prepare the economy for the
elimination of all formal indexation mechanisms. This strategy has been
extraordinarily successful in the two years since the Real plan was introduced.
Inflation was 7.0% for the first six months of this year, and the full year
inflation rate is projected by the government at 13% to 15%. This compares with
23.2% in 1995 and government estimates of 10% inflation for 1997.
The cost of the successful assault on inflation has been an increase in the
unemployment rate in a small number of markets and a slowdown in the rate of
economic growth, due mainly to the obscenely high cost of consumer credit. The
government currently forecasts economic growth for the year in the range of 2%
to 3%. Growth in 1995 was 4.2%, and the Cardoso administration's longer-range
growth goal is 5% a year. A moderation in the rate of economic expansion and
weakness in the prices of a number of globally traded commodities (such as pulp,
paper, and steel) created several attractive investment opportunities among the
cyclical stocks. As a result, the Fund added to its existing holdings in the
forest products and steel industries.
Despite continuing concern in the Brazilian financial community for the
health of a number of prominent banking organizations, the Fund's investments in
Banco Itau and Bradesco generated satisfactory returns during the first half of
the year. Investors have clearly differentiated these two conservatively
managed, highly liquid, and strongly capitalized institutions from the rest of
the industry. The Fund increased its investment in Bradesco during the semester.
A Constructive Outlook
Most of the new capital raised by the Fund's rights offering last year has
now been invested in Brazilian equities. We believe the portfolio is
well-positioned to profit from the privatization and deregulation process now
well-advanced in Brazil. Private sector companies in which the Fund has an
4
<PAGE>
important stake continue to invest heavily with internally generated cash flow
to improve productivity, upgrade quality, and position their business to take
advantage of the opportunities created by the Mercosul free trade agreement.
Chile's entry into Mercosul is a clear gain for all members of the pact.
Business conditions specific to the companies in which the Fund has a major
participation should continue to be positive over the balance of the year.
Whether or not this constructive outlook has already been discounted by
investment returns for the first half of the year remains to be seen. The
longer-term opportunities for the equity investor in Brazil continue to be
positive.
Respectfully,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
5
<PAGE>
THE BRAZIL FUND, INC.
INVESTMENT SUMMARY AS OF JUNE 30, 1996
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER 10.40 - 13.62 - 19.95 -
FISCAL YEAR TO DATE 13.02 - 26.72 - 36.22 -
ONE YEAR 8.20 8.20 22.24 22.24 54.15 54.15
THREE YEAR 75.39 20.60 83.14 22.35 121.33 30.32
FIVE YEAR 120.32 17.11 152.70 20.37 405.54 38.28
LIFE OF FUND* 258.02 16.76 326.71 19.27 532.46 25.04
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (A)
YEARLY PERIODS ENDED JUNE 30
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994 1995 1996
------------------------------------------------------------------------
NET ASSET VALUE... $ 11.72 $16.42 $9.90 $14.03 $14.27 $18.44 $22.38 $24.47 $26.27
INCOME DIVIDENDS.. $ - $ .41 $1.01 $ - $ - $ - $ .08 $ - $ .30
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ - $ .39 $2.18 $ - $ .28 $ .53 $ .93 $ 2.36 $ .81
TOTAL RETURN (%).. 1.56 54.68 -24.15 41.72 3.01 33.96 26.58 18.36 22.24
</TABLE>
(a) Total investment return reflect changes in net asset value per share during
each period and assume that 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 price.
(b) Sao Paulo Stock Exchange Index ($)
* The Fund commenced operations on April 8, 1988.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
6
<PAGE>
THE BRAZIL FUND, INC.
PORTFOLIO SUMMARY AS OF JUNE 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
Equity Securities 96%
Cash Equivalents 4%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
SECTORS
Sector breakdown of the Fund's equity securities
Telecommunications 17%
Utilities 14%
Food and Beverage 12%
Banking 11%
Forest Products 9%
Petroleum 7%
Chemicals 6%
Mining 5%
Tobacco 4%
Other 15%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
1. Companhia Cervejaria Brahma
2. Telecomunicacoes Brasileiras S.A.
3. Telecomunicacoes de Sao Paulo S.A.
4. Banco Itau S.A.
5. Petroleo Brasileiro S/A
6. Centrais Eletricas Brasileiras S/A
7. Companhia Vale do Rio Doce
8. Banco Bradesco S.A
9. S/A White Martins
10. Companhia Souza Cruz Industria e Comercio
7
<PAGE>
[LOGO]The Brazil Fund, Inc.
<TABLE>
Investment Portfolio As Of June 30, 1996
========================================================================================================
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Industry Shares Company Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY SECURITIES 96.5%
AUTO PARTS 0.2% 83,061,800 (pfd.) Metal Leve S.A. Industria e Comercio* ....... 818,913
----------
BANKING 11.1% 2,108,692,307 (pfd.) Banco Bradesco S.A. ......................... 17,219,815
73,064,208 (pfd.) Banco Itau S.A. ............................. 29,686,268
----------
46,906,083
----------
CHEMICALS 5.5% 45,152,000 (voting) Companhia Petroquimica do Sul S.A. .......... 2,877,785
6,309,400 (pfd.) COPENE Petroquimica do Nordeste
S.A. "A" .................................. 3,041,066
12,233,921,463 (voting) S/A White Martins ........................... 17,178,538
----------
23,097,389
----------
CONSTRUCTION 0.6% 5,211,300 (voting) Odebrecht S.A. (b) .......................... 2,646,675
----------
CONTAINERS 0.4% 1,754,000 (pfd.) Dixie Toga S.A. ............................. 1,694,348
----------
ELECTRICAL EQUIPMENT 3.2% 5,042,000 (pfd.) Brasmotor S.A. .............................. 1,576,645
6,213,800 (pfd.) Empresa Brasileira de Compressores S.A. ..... 3,898,515
17,006,600 (pfd.) Weg S.A. .................................... 7,917,727
----------
13,392,887
----------
FINANCE 0.8% 4,531,000 (pfd.) Itausa-Investimentos Itau S/A ............... 3,474,451
----------
FOOD AND BEVERAGE 11.6% 700,066,740 (pfd.) Cia. Hering ................................. 3,904,171
56,097,913 (pfd.) Companhia Cervejaria Brahma ................. 33,463,775
3,184,433 (pfd.) Companhia Cervejaria Brahma Warrants
(expire 9/30/96)* ......................... 1,078,233
14,651,430 (pfd.) Sadia Concordia S/A ......................... 10,213,615
----------
48,659,794
----------
FOREST PRODUCTS 8.9% 7,603,599 (pfd.) Aracruz Celulose S.A. "B" ................... 14,159,966
3,269,600 (pfd.) Companhia Suzano de Papel e Celulose* ....... 12,373,132
8,510,740 (pfd.) Industrias Klabin de Papel e Celulose S/A ... 10,763,969
----------
37,297,067
----------
GLASS 2.2% 2,330,236 (voting) Companhia Vidraria Santa Marina ............. 9,166,392
----------
IRON AND STEEL 3.7% 14,957,100,000 (pfd.) Usinas Siderurgicas de Minas Gerais S/A ..... 15,789,002
----------
MINING 4.7% 927,104 (pfd.) Companhia Vale do Rio Doce .................. 18,003,812
50,373,640 (voting) S.A. Mineracao da Trindade .................. 1,755,791
----------
19,759,603
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
========================================================================================================
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Industry Shares Company Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PETROLEUM 6.6% 225,739,999 (pfd.) Petroleo Brasileiro S/A .................... 27,763,671
-----------
RETAILING 1.9% 73,031,600 (pfd.) Lojas Americanas S.A. ...................... 1,440,049
370,187,800 (voting) Lojas Americanas S.A. ...................... 6,598,976
-----------
8,039,025
-----------
TELECOMMUNICATIONS 16.6% 490,256,600 (pfd.) Telecomunicacoes Brasileiras S.A. .......... 34,224,954
12,122,900 (pfd.) Telecomunicacoes do Parana S/A ............. 5,879,453
140,212,067 (pfd.) Telecomunicacoes de Sao Paulo S.A. ......... 30,021,007
-----------
70,125,414
-----------
TEXTILES AND APPAREL 1.1% 92,193,348 (pfd.) Hering Textil S.A.* ........................ 59,678
51,929,600 (pfd.) Sao Paulo Alpargatas S.A. .................. 4,369,916
-----------
4,429,594
-----------
TOBACCO 4.0% 1,927,543 (voting) Companhia Souza Cruz Industria e Comercio .. 16,796,297
-----------
UTILITIES 13.4% 69,000,000 (pfd.) Centrais Eletricas Brasileiras S/A "B" ..... 19,721,157
2,206,921 (pfd.) Centrais Eletricas de Santa Catarina S.A. .. 2,065,932
630,740,952 (pfd.) Companhia Energetica de Minas Gerais ....... 16,771,183
60,780,000 (pfd.) Companhia Energetica de Sao Paulo* ......... 2,118,508
42,100,000 (voting) Companhia Energetica de Sao Paulo* ......... 1,383,558
82,500,000 (pfd.) Companhia Paranaense de Energia ............ 738,610
512,711,500 (voting) Companhia Paranaense de Energia ............ 5,820,755
84,780,000 (voting) Companhia Paulista de Forca e Luz* ......... 7,767,525
-----------
56,387,228
-----------
TOTAL EQUITY SECURITIES
(Cost $175,434,956) ...................... 406,243,833
-----------
- --------------------------------------------------------------------------------------------------------
Principal
Amount ($)
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 3.5%
14,914,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette, dated 6/28/96 at
5.45%, to be repurchased at
$14,920,773 on 7/1/96, collateralized
by a $14,834,000 U.S. Treasury Note,
7.25%, 11/15/96 (Cost $14,914,000) ....... 14,914,000
-----------
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $190,348,956) (a) .................. 421,157,833
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
[LOGO]The Brazil Fund, Inc.
Investment Portfolio (continued)
===============================================================================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(a) The cost of the investment portfolio for federal income tax purposes was
$190,377,564. At June 30, 1996, net unrealized appreciation for all
securities based on tax cost was $230,780,269. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $236,039,525 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $5,259,256.
(b) Securities valued in good faith by the Board of Directors. The cost of
these securities at June 30, 1996 aggregated $2,641,191. See Note A of the
Notes to Financial Statements.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
[LOGO]The Brazil Fund, Inc.
<TABLE>
Financial Statements
========================================================================================================
- --------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (identified cost $190,348,956) (Notes A and D) ......... $421,157,833
Cash ......................................................................... 157
Foreign currency holdings, at market (identified cost $2,198,709) (Note A) ... 2,198,709
Receivable for investments sold .............................................. 202,330
Dividends and interest receivable ............................................ 3,684,621
Other assets ................................................................. 1,768
------------
Total assets ........................................................... 427,245,418
LIABILITIES
Payables:
Investments purchased ...................................................... $173,437
Accrued management fee (Note C) ............................................ 393,521
Accrued administrator's fee (Note C) ....................................... 33,488
Accrued offering costs (Note A) ............................................ 3,394
Other accrued expenses (Note C) ............................................ 305,276
--------
Total liabilities ...................................................... 909,116
------------
Net assets ................................................................... $426,336,302
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ........................................ $ 9,080,625
Net unrealized appreciation (depreciation) on:
Investments ............................................................. 230,808,877
Foreign currency denominated transactions ............................... (39,742)
Accumulated net realized gain .............................................. 856,863
Common stock ............................................................... 162,300
Additional paid-in capital ................................................. 185,467,379
------------
Net assets ................................................................... $426,336,302
============
NET ASSET VALUE per share ($426,336,302 [Division Sign] 16,229,987 shares of
common stock outstanding, 50,000,000 shares authorized, $.01 par value) .... $ 26.27
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE>
[LOGO]The Brazil Fund, Inc.
<TABLE>
Financial Statements (continued)
========================================================================================================
- --------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of withholding tax of $1,941,116) (Note A) ....... $11,368,089
Interest ........................................................ 735,103
-----------
12,103,192
Expenses:
Management fee (Note C) ......................................... $ 2,263,254
Administrator's fee (Note C) .................................... 25,278
Custodian and accounting fees (Note C) .......................... 565,234
Directors' fees and expenses (Note C) ........................... 54,941
Legal ........................................................... 83,388
Auditing and tax services ....................................... 47,500
Reports to shareholders ......................................... 18,082
Other ........................................................... 7,507
-----------
Total expenses before reductions ................................ 3,065,184
Expense reductions (Note C) ..................................... (42,617)
-----------
Expenses, net ................................................... 3,022,567
-----------
Net investment income .............................................. 9,080,625
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (Note A) ............................................ 2,474,775
Foreign currency denominated transactions ....................... (371,752) 2,103,023
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ..................................................... 78,683,720
Foreign currency denominated transactions ....................... (22,740) 78,660,980
----------- -----------
Net gain on investment transactions ................................ 80,764,003
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $89,844,628
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 9,080,625 $ 4,759,731
Net realized gain from investment transactions .......................... 2,103,023 8,131,112
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................................ 78,660,980 (99,387,730)
------------ ------------
Net increase (decrease) in net assets resulting from operations ............ 89,844,628 (86,496,887)
------------ ------------
Distributions to shareholders:
From net investment income ($.30 per share) ............................. -- (4,219,309)
------------ ------------
From net realized gains on investment transactions ($.90 per share) ..... -- (10,880,906)
------------ ------------
In excess of net realized gains on investment transactions
($.15 per share) ..................................................... -- (1,810,809)
------------ ------------
Net asset value of shares issued to shareholders in reinvestment of
distributions ........................................................... 78,763 1,578,897
------------ ------------
Net proceeds of shares issued in connection with the Fund's rights
offering, net of broker and dealer manager fees of $1,565,047 and
expenditures and offering costs of $660,000 (Note A) .................... -- 61,719,953
------------ ------------
INCREASE (DECREASE) IN NET ASSETS .......................................... 89,923,391 (40,109,061)
Net assets at beginning of period .......................................... 336,412,911 376,521,972
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $9,080,625 in 1996) ......................................... $426,336,302 $336,412,911
============ ============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period .................................. 16,226,496 12,107,722
Shares issued to shareholders in reinvestment of distributions .......... 3,491 58,774
Shares issued in connection with the Fund's rights offering (Note A) .... -- 4,060,000
------------ ------------
Shares outstanding at end of period ........................................ 16,229,987 16,226,496
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
[LOGO]The Brazil Fund, Inc.
<TABLE>
Financial Highlights
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
<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.
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
1996(a) 1995(a) 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ....... $20.73 $31.10 $20.98 $14.12 $13.80 $ 5.97
------ ------ ------ ------ ------ ------
Net investment income (loss) ........... .56 .38 (.17) .10 .19 .95
Net realized and unrealized gain (loss)
on investment transactions(c) ....... 4.98 (7.63)(b) 12.75 7.58 .79 6.88
------ ------ ------ ------ ------ ------
Total from investment operations ........... 5.54 (7.25) 12.58 7.68 .98 7.83
------ ------ ------ ------ ------ ------
Less distributions:
From net investment income ............. -- (.30) -- (.08) -- --
From net realized gains on investments . -- (.90) (2.46) (.74) (.66) --
In excess of net realized gains on
investments ......................... -- (.15) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions ........................ -- (1.35) (2.46) (.82) (.66) --
------ ------ ------ ------ ------ ------
Dilution resulting from the rights
offering (Note A) ........................ -- (1.73) -- -- -- --
------ ------ ------ ------ ------ ------
Broker and dealer manager fees and offering
costs (Note A) ........................... -- (.04) -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period ............. $26.27 $20.73 $31.10 $20.98 $14.12 $13.80
====== ====== ====== ====== ====== ======
Market value, end of period ................ $23.88 $21.13 $33.00 $21.13 $13.63 $14.75
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN
Per share market value (%) ............... 13.02** (26.37) 69.81 60.89 (3.91) 122.64
Per share net asset value (%)(d) ......... 26.72** (23.31) 61.09 54.19 6.43 131.16
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ... 426 336 377 254 171 167
Ratio of operating expenses net, to average
net assets (%)(e)(f) ................... 1.61* 1.62 1.71 1.84 2.22 2.15
Ratio of net investment income (loss) to
average net assets (%) ................. 4.82* 1.54 (.58) .56 1.13 8.13
Portfolio turnover rate (%) .............. 4.99* 9.65 5.76 4.67 7.94 12.69
Average commission rate paid (g) ......... $.00002 $ -- $ -- $ -- $ -- $ --
<FN>
(a) Based on monthly average of shares outstanding during each period.
(b) Due to the timing and magnitude of the rights offering, the amount reported
herein is not proportional to the aggregate value reported in the
Statements of Changes in Net Assets.
(c) Realized and unrealized currency losses on the Fund's interest bearing
accounts amounted to $.31 and $.86 per share in 1992 and 1991,
respectively.
(d) Total investment returns reflect changes in net asset value per share
during each period and assume that 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 price.
(e) For the years ended December 31, 1993 and 1992 the ratio of expenses,
including the Brazilian repatriation tax, to average net assets was 2.22%
and 2.39%, respectively.
(f) For the six months ended June 30, 1996 and the year ended December 31,
1995, the ratio of expenses, before reductions, to average net assets was
1.63% and 1.67%, respectively.
(g) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after September 1, 1995.
* Annualized ** Not annualized
- ------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
14
<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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
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 $2,646,675 (.62% of net assets) and are noted in the
Investment Portfolio as of June 30, 1996. Their values have been estimated by
the Board of Directors in the absence of readily ascertainable market values or
other market factors, respectively. However, because of the inherent uncertainty
of valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and the
difference could be material.
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.
From November 1, 1995 through December 31, 1995 the Fund incurred approximately
$1,198,000 of net realized capital losses which the Fund intends to elect to
defer and treat as arising in the fiscal year ended December 31, 1996.
15
<PAGE>
[LOGO]The Brazil Fund, Inc.
Notes To Financial Statements (continued)
===============================================================================
- -------------------------------------------------------------------------------
Effective January 1, 1996, the Brazilian withholding tax on dividend income was
reduced from 15% to 0%. This rate change applies to dividends paid from a
company's 1996 profits. Dividends paid from 1995 profits will continue to be
taxed at 15%.
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.
RIGHTS OFFERING. During the year ended December 31, 1995, the Fund issued
4,060,000 shares in connection with a rights offering of the Fund's shares.
Shareholders of record on November 20, 1995 were issued one transferable right
for each share owned. The rights entitled shareholders the opportunity to
purchase one share of common stock for each three rights held at a subscription
price of $15.75 per share. Rights offering costs were approximately $660,000 and
broker and dealer manager fees were $1,565,047. The net asset value per share of
the Fund's common shareholders was reduced by approximately $1.77 per share as a
result of the share issuance.
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, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $57,504,350 and
$8,730,000, 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 1.175% of the Fund's
average weekly net assets. The Adviser has agreed to not charge the Fund an
amount equal to .10% of average weekly net assets in excess of $300,000,000. For
the six months ended June 30, 1996, the fee pursuant to the Management Agreement
amounted to $2,220,637 and the portion not charged to the Fund amounted to
$42,617.
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
16
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
Advisory Agreement, the Adviser agrees to pay the Brazilian Adviser a monthly
fee equal to 0.125% of the first $150,000,000 of the Fund's average weekly net
assets, 0.075% of such assets over $150,000,000 and up to and including
$300,000,000, and 0.025% of such assets over $300,000,000. For the six months
ended June 30, 1996, the fee pursuant to the Advisory Agreement amounted to
$160,655, of which $27,320 is unpaid at June 30, 1996.
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, 1996, the Administrator fee amounted to $25,278.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible 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, 1996, the amount charged to the Fund by SFAC aggregated $116,801,
of which $39,682 is unpaid at June 30, 1996.
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, 1996, Directors' fees and expenses
amounted to $54,941.
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.
17
<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 June 30, 1996, 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, 1996 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 13, 1996
18
<PAGE>
Dividend Reinvestment and Cash Purchase Plan
The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you an automatic way to reinvest your dividends and capital gain distributions
in shares of the Fund. The Plan also provides for cash investments in Fund
shares of $100 to $3,000 semiannually through The First National Bank of Boston,
the Plan Agent.
Automatic Participation
Each shareholder of record is automatically a participant in the Plan
unless the shareholder has instructed the Plan Agent in writing otherwise. Such
a notice must be received by the Plan Agent not less than 10 days prior to the
record date for a dividend or distribution in order to be effective with respect
to that dividend or distribution. A notice which is not received by that time
will be effective only with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by The First National Bank of Boston, as dividend paying agent.
Shares Held by a Nominee
If your shares are held in the name of a brokerage firm, bank, or other
nominee as the shareholder of record, please consult your nominee (or any
successor nominee) to determine whether it is participating in the Plan on your
behalf. Many nominees are generally authorized to receive cash dividends unless
they are specifically instructed by a client to reinvest. If you would like your
nominee to participate in the Plan on your behalf, you should give your nominee
instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution or, if that date is not a New York Stock Exchange trading date, the
next preceding trading date (the "Valuation Date") equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants at
the greater of the following on the Valuation Date: (a) net asset value, or (b)
95% of the market price. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on the Valuation Date of new shares
issued. State and local taxes may also apply. If the Fund should declare an
income dividend or net capital gain distribution payable only in cash, the Plan
Agent will, as agent for the participants, buy Fund shares in the open market,
on the New York Stock Exchange or elsewhere, for the participants' account on,
or shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's shares. The Plan Agent will use all such monies
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
30 days prior to these dates will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately 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.
19
<PAGE>
Dividend Reinvestment and Cash Purchase Plan (continued)
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants 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 participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends
or distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gain distributions will be
paid by the Fund. There will be no brokerage commissions with respect to shares
issued directly by the Fund as a result of dividends or capital gain
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gain distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $1.00 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
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 pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a 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 law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated,
the Plan Agent is authorized to deduct a fee of 5% of the gross proceeds, to a
maximum of $3.50, plus brokerage commissions from the sale transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: The Brazil Fund, Inc. Dividend Reinvestment and Cash Purchase Plan,
c/o The First National Bank of Boston, P.O. Box 8209, Boston, MA 02266-8209,
1-800-426-5523.
20
<PAGE>
Investment Manager and Administrator
The investment manager and administrator of The Brazil Fund, Inc. (the
"Fund") is Scudder, Stevens & Clark, Inc., one of the most experienced
investment management and investment counsel firms in the United States.
Established in 1919, the firm provides investment counsel for individuals,
investment companies and institutions. Scudder has offices throughout the United
States and subsidiaries in London and Tokyo.
Scudder has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was initially
incorporated in Canada in 1953 as the first foreign investment company
registered with the U.S. Securities and Exchange Commission. Scudder's
investment company clients include nine other open-end investment companies
which invest primarily in foreign securities.
In addition to the Fund, Scudder also manages the assets of seven other
closed-end investment companies which invest in foreign securities: The
Argentina Fund, The Korea Fund, The Latin America Dollar Income Fund, Scudder
New Asia Fund, Scudder New Europe Fund, and Scudder World Income Opportunities
Fund are traded on the New York Stock Exchange and The First Iberian Fund is
traded on the American Stock Exchange.
21
<PAGE>
Directors and Officers
JURIS PADEGS*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
EDGAR R. FIEDLER
Director
ROBERTO TEIXEIRA DA COSTA
Director and Resident Brazilian Director
RONALDO A. DA FROTA NOGUEIRA
Director and Resident Brazilian Director
WILSON NOLEN
Director
EDMOND D. VILLANI*
Director
LINO OTTO BOHN
Honorary Director
EDMUND B. GAMES, JR.*
Vice President
JERARD K. HARTMAN*
Vice President
DAVID S. LEE*
Vice President
PAMELA A. McGRATH*
Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
22
