LOGO
The Brazil Fund, Inc.
Semiannual Report
June 30, 1998
A closed-end investment company seeking long-term capital appreciation through
investment primarily in the equity securities of Brazilian issuers.
<PAGE>
(logo) The Brazil Fund, Inc.
================================================================================
Investment objective and policies
o long-term capital appreciation through investment primarily in equity
securities of Brazilian issuers
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
(logo) General Information
================================================================================
Executive offices
The Brazil Fund, Inc.
345 Park Avenue
New York, NY 10154
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
PricewaterhouseCoopers LLP
New York Stock Exchange Symbol -- BZF
(logo) Contents
================================================================================
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 21
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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>
(logo) The Brazil Fund, Inc.
In Brief
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o For the six-month period ended June 30, 1998, The Brazil Fund's total return
based on market price declined 13.30%, compared to the 8.4% decline of the
Sao Paulo Stock Exchange Index over the same period.
o Privatization of the federal government telephone monopoly, Telecomunicacoes
Brasileiras, should make much of Brazil's electric utility and telephony
sector available to domestic and foreign investors.
o As an election year for Brazil, 1998 has seen political uncertainty weighing
on the market during the first half of the year and a likelihood that it will
affect market returns for the rest of the year.
(logo) Letter to Shareholders
================================================================================
Dear Shareholders:
For the six-month period ending June 30, 1998, The Brazil Fund's total return
of shares trading on the New York Stock Exchange declined 13.30% to $18.125 per
share, down from $21.00 per share on December 31, 1997. This performance
compares to the 8.4% decline of the Sao Paulo Stock Exchange Index (Bovespa)
over the same period. The total return of the Fund declined 10% over the same
period, resulting in a discount of share price to net asset value of 23.4%.
Economic Environment of Improving Inflation,
High Interest Rates
As we enter the fifth year of Brazil's Real Plan, the enormous strides that
Brazil has made toward creating sustainable economic growth should not be
overlooked. Particularly encouraging is the lack of volatility in the foreign
exchange rate as the real continues its gradual depreciation against the U.S.
dollar within a slightly widening currency band. The introduction of a stable
currency four years ago has also led to ongoing success on the inflation front,
as the consumer inflation rate for the first six months of 1998 was 1.18% and
estimates for the full year are below 3.0%. A more stable operating environment
combined with successful privatizations has also led to improvement in the
current account as export growth continues. Foreign reserves now total above $70
billion (all figures are reported in terms of U.S. dollars), bolstered by over
$8 billion in foreign direct investment this half as well as shorter term fixed
income investment. Unfortunately, from a stock market perspective, these
successes have been overshadowed by continuing and valid concerns over the
fiscal deficit, particularly in an environment of heightened global risks.
The Brazilian government's limited means to address external shocks, as well
as the difficulties of operating in a relatively inefficient democracy, has
meant that growth over the last few years has been sacrificed to higher interest
rates in order to maintain economic stability. Brazil's GDP, which is estimated
at $770 billion currently, has not grown at an annual rate above 3% since 1995.
This year should be no better, given the high interest rates at the beginning of
the year and that growth is expected to slow to below 2% during the second half
of the year.
There has been improvement in interest rates domestically, however, with a
reduction from the 42% levels of last October (during the escalation of the
Asian financial crisis) to approximately 20% currently. That spike in rates has
increased the debt burden of the country and it appears that the government's
public sector deficit could approach 8% by year-end, before receding to more
comfortable levels in 1999 as the shorter term debt rolls off. The government
recently decided to issue an increasing
3
<PAGE>
(logo) The Brazil Fund, Inc.
Letter to Shareholders
================================================================================
amount of floating rate debt instruments to reduce the cost of government
borrowing over the election campaign season while reducing the current interest
costs. This decision could prove problematic if the government is forced to
raise interest rates in order to counteract currency speculation in the event of
further economic turmoil globally, as was witnessed last October.
Political Uncertainties Weigh on Market
An election year in Latin America always brings with it many political
uncertainties which tend to weigh on stock market returns -- Brazil this year is
no exception. Generally, the two most significant uncertainties during an
election year are the likelihood of the continuance of economic policies if a
new political regime is elected, and the fiscal costs which the current
incumbent will incur in order to get re-elected. On the first issue, perennial
opposition candidate Luis Inacio Lula da Silva received favorable ratings early
on in his campaign, which was a reversal of the improving trend that the stock
market experienced in the first quarter of the year. However, as the first half
of the year came to a close, current President Fernando Henrique Cardoso's
popularity was rising and it appears increasingly likely at this point in time
that he will be granted a second term to carry on with his economic policies. On
the second issue of fiscal discipline, the true costs of re-election are
impossible to measure and we can only be hopeful that the federal government
will increase its commitment to its already pronounced, but not yet shown,
fiscal austerity.
Further political uncertainty was brought to the forefront in April when
Brazil was stunned by the deaths of two key allies of President Cardoso: Sergio
Motta, the Minister of Telecommunications, and Luis Eduardo Magalhaes, the
government leader in the Chamber of Deputies. Both foreign and domestic
investors were concerned that two individuals prominent in the privatization and
reform process, and expected to be fundamental participants in Cardoso's
re-election campaign, were suddenly absent. However, Brazil's political system,
while sometimes frustrating in its penchant for muddling along, has also proven
extremely resilient and a source of considerable expertise. In Brazil's short
history as a democracy, the people of Brazil have had to face the death of one
newly elected president before he even took office and the impeachment of its
first elected president who actually served.
While much remains to be done in the area of government reforms, the first
half of 1998 did see some progress. Administrative reform, which should help
reduce the size of government, was approved. Social security reform, which will
help to reduce the outlay by the government to retired civil servants, has not
yet been passed in full but has been pushed ahead and could see passage in the
second half of the year. Still remaining are two key government initiatives. One
is the area of political reform, which is designed to bring more unity to the
fractious congressional system through a system of "party loyalty." The other is
fiscal reform, which focuses on the tax system and the states' budgets, and has
unfortunately seen little progress to date.
Portfolio Update
Over the six-month period, the Fund added to its holdings in the electric
utilities sector, concentrating on recently privatized electricity distributor
Companhia Paulista de Forca e Luz. The company was purchased by a Brazilian
consortium consisting of Bradesco, the largest private sector bank, Votorantim,
the largest private sector conglomerate, and Camargo Correa, a large
construction company. Sales over the period were primarily for valuation and
diversification reasons, as we trimmed our positions in a number of our largest
holdings. These included Petroleo Brasileiro, the state-owned oil company,
Telecomunicacoes de Sao Paulo, the telephone monopoly for the state of Sao
4
<PAGE>
(logo) The Brazil Fund, Inc.
Letter to Shareholders
================================================================================
Paulo, the two financial institutions Banco Itau and Banco Bradesco, and the
brewer, Companhia Cervejaria Brahma. We also reduced our stake in Usinas
Siderurgicas de Minas Gerais, the private sector flat steel company, given
concerns over falling steel prices.
Outlook Focused on Privatizations
Presently, it appears that the government of Brazil will successfully
privatize the federal government telephone monopoly, Telecomunicacoes
Brasileiras, at prices above the minimum bid prices set by the Ministry of
Communications. This is the culmination of what has been an incredibly dynamic
privatization process, which will effectively put much of the electric utility
and telephony sector of the country into both foreign and domestic investors'
hands. While much is to be expected in terms of the restructuring and increasing
efficiency of the individual companies involved, it is also important on a
macroeconomic level. Proceeds from these privatizations should be used to reduce
the sizable domestic debt burden, and, when combined with the foreign direct
investment required as new operators undertake the required capital
expenditures, should support already high foreign reserve levels.
There is a danger that a string of government successes in telephone
privatizations, interest rate reductions, foreign exchange reserve levels, and
elections over the coming months will lead to a sense of complacency within
Brazil, which will not be conducive to attacking the longer term structural
problems of the economy. Assuming re-election in October, President Cardoso and
his team must act quickly and forcefully to introduce fiscal measures designed
to reduce government expenditures and to push Congress to pass the required
social security, fiscal, and political reforms still pending.
While the macroeconomic risks remain high, much of the private sector in
Brazil, which is increasing given the recent privatizations, continues to be
well positioned for improvements in economic growth. Leverage remains low,
capital expenditures have been made to modernize plants and improve
productivity, and cash flow continues to be strong for many of the Fund's
holdings. This should enable these companies to withstand the current slowdown
in the economy and prosper as times improve.
While the heightened concerns over emerging markets continues to weigh on
stock valuations in Brazil, we believe that the country has much to be proud of
given its advances to date. Over the longer term these advances should provide
ongoing opportunities for the equity investor in Brazil.
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, 1998
- -----------------------------------------------------------------
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 -20.98 -- -17.55 -- -20.35 --
ONE YEAR -32.25 -32.25 -23.82 -23.82 -28.31 -28.31
THREE YEAR -0.07 -0.02 34.00 10.25 113.89 28.84
FIVE YEAR 61.98 10.13 100.75 14.96 208.33 25.26
TEN YEAR 352.96 16.31 360.55 16.50 747.41 23.83
- -----------------------------------------------------------------
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> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------------
NET ASSET VALUE... $16.42 $ 9.90 $14.03 $14.27 $18.44 $22.38 $24.47 $26.27 $35.71 $23.67
INCOME DIVIDENDS.. $ .41 $ 1.01 $ -- $ -- $ -- $ .08 $ -- $ .30 $ .61 $ .56
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ .39 $ 2.18 $ -- $ .28 $ .53 $ .93 $ 2.36 $ .81 $ .75 $ 2.32
TOTAL RETURN (%).. 54.68 -24.15 41.72 3.01 33.96 26.58 18.36 22.24 43.88 -23.82
</TABLE>
(a) 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.
(b) Sao Paulo Stock Exchange Index ($).
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
6
<PAGE>
THE BRAZIL FUND, INC.
PORTFOLIO SUMMARY AS OF JUNE 30, 1998
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DIVERSIFICATION
Equity Securities 88%
Cash Equivalents 12%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
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SECTORS
Sector breakdown of the Fund's equity securities
Telecommunications 23%
Banking 16%
Utilities 15%
Petroleum 10%
Food and Beverage 9%
Mining 6%
Forest Products 5%
Electrical Equipment 4%
Tobacco 4%
Other 8%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
1. Telecomunicacoes Brasileiras S.A
2. Banco Itau S.A.
3. Petroleo Brasileiro S/A
4. Companhia Cervejaria Brahma
5. Telecomunicacoes de Sao Paulo S.A.
6. Companhia Vale do Rio Doce
7. Banco Bradesco S.A
8. Companhia Energetica de Minas Gerais
9. Centrais Eletricas Brasileiras S/A
10. Companhia Souza Cruz Industria e Comercio
7
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Investment Portfolio as of June 30, 1998
=======================================================================================================================
Shares Value ($)
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<S> <C> <C>
EQUITY SECURITIES 88.3%
BANKING 13.9%
Banco Bradesco S.A. (pfd.) ............................................................ 2,233,692,307 18,637,440
Banco Itau S.A. (pfd.) ................................................................ 60,024,208 34,253,579
----------
52,891,019
----------
CHEMICALS 1.8%
Companhia Petroquimica do Sul S.A. (voting) ........................................... 39,712,000 1,390,632
S/A White Martins (voting) ............................................................ 5,950,846 5,505,517
----------
6,896,149
----------
CONSTRUCTION 0.7%
Odebrecht S.A. (voting) (b) ........................................................... 575,630,000 2,762,307
----------
CONTAINERS 0.5%
Dixie Toga S.A. (pfd.) ................................................................ 4,389,000 1,859,505
----------
ELECTRICAL EQUIPMENT 3.3%
Empresa Brasileira de Compressores S.A. (pfd.) ........................................ 6,393,800 1,824,352
Weg S.A. (pfd.) ....................................................................... 16,026,600 10,531,508
----------
12,355,860
----------
FOOD AND BEVERAGE 8.3%
Ceval Participacoes S/A (pfd.)* (b) ................................................... 371,066,740 1,321,858
Companhia Cervejaria Brahma (pfd.) .................................................... 39,257,913 24,439,667
Sadia Concordia S/A (pfd.) ............................................................ 9,088,430 5,657,922
----------
31,419,447
----------
FOREST PRODUCTS 4.5%
Aracruz Celulose S.A. "B" (pfd.) ...................................................... 8,253,599 9,277,315
Companhia Suzano de Papel e Celulose S.A. (pfd.) ...................................... 3,357,600 3,425,678
Industrias Klabin de Papel e Celulose S.A. (pfd.) ..................................... 10,556,740 4,381,337
----------
17,084,330
----------
GLASS 1.0%
Companhia Vidraria Santa Marina (voting) .............................................. 2,340,236 3,945,753
----------
IRON AND STEEL 1.3%
Companhia Siderurgica de Tubarao (pfd.)* .............................................. 100,100,000 1,367,498
Usinas Siderurgicas de Minas Gerais S.A. (pfd.) ....................................... 728,210 3,714,875
----------
5,082,373
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Investment Portfolio
=======================================================================================================================
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MINING 5.2%
Companhia Vale do Rio Doce (pfd.) "A"* ................................................ 922,104 18,816,008
S.A. Mineracao da Trindade (voting) ................................................... 38,392,104 896,275
-----------
19,712,283
-----------
PETROLEUM 9.0%
Petroleo Brasileiro S.A. (pfd.) ....................................................... 183,739,999 34,156,846
-----------
RETAILING 1.5%
Companhia Brasileira de Distribuicao -- Grupo Pao de Acucar (voting) .................. 110,000,000 2,472,872
Lojas Americanas S.A.* (voting) ....................................................... 435,687,800 2,972,268
-----------
5,445,140
-----------
TELECOMMUNICATIONS 20.4%
Telecomunicacoes Brasileiras S.A. (pfd.) .............................................. 390,256,600 42,448,906
Telecomunicacoes de Sao Paulo S.A. (pfd.) ............................................. 94,212,067 22,157,003
Telecomunicacoes do Parana S/A (pfd.) ................................................. 15,242,900 3,822,092
Telepar Celular S.A. (pfd.)* .......................................................... 15,242,900 1,383,729
Telesp Celular S.A. (pfd.)* ........................................................... 94,212,067 7,820,119
-----------
77,631,849
-----------
TEXTILES AND APPAREL 0.6%
Sao Paulo Alpargatas S.A. (pfd.)* ..................................................... 47,579,600 2,200,950
-----------
TOBACCO 3.2%
Companhia Souza Cruz Industria e Comercio (voting) .................................... 1,657,543 12,325,338
-----------
UTILITIES 13.1%
Centrais Eletricas Brasileiras S.A. "B" (pfd.) ........................................ 545,000,000 16,398,772
Centrais Geradoras do Sul do Brasil SA* (pfd.) ........................................ 545,000,000 786,953
Companhia Energetica de Minas Gerais (pfd.) ........................................... 573,019,229 17,836,403
Companhia Paranaense de Energia (pfd.) ................................................ 360,700,000 3,368,259
Companhia Paranaense de Energia (voting) .............................................. 879,642,700 6,921,230
Companhia Paulista de Forca e Luz (pfd.) .............................................. 2,640,000 249,380
Companhia Paulista de Forca e Luz (pfd.) Pro-rata shares* ............................. 182,301 14,186
Companhia Paulista de Forca e Luz* (voting) ........................................... 42,770,000 4,364,089
-----------
49,939,272
-----------
TOTAL EQUITY SECURITIES (Cost $160,259,449) ........................................... 335,708,421
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Investment Portfolio
=======================================================================================================================
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 3.8%
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75%
to be repurchased at $14,538,322 on 7/1/1998, collateralized by a $14,181,000
U.S. Treasury Note, 6.25%, 8/31/2000
(Cost $14,536,000) .................................................................. 14,536,000 14,536,000
-----------
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTE 7.9%
Federal National Mortgage Association, 5.85%, 7/1/1998
(Cost $30,000,000) .................................................................. 30,000,000 30,000,000
-----------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO-- 100.0% (Cost $204,795,449) (a) ........................... 380,244,421
===========
</TABLE>
* Non-income producing security.
(a) The cost of the investment portfolio for federal income tax purposes was
$206,109,715. At June 30, 1998, net unrealized appreciation for all
securities based on tax cost was $174,134,706. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $204,009,830 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $29,875,124.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $4,084,165 (1.05% of net assets). Their
values have been estimated by the Board of Directors in the absence of
readily ascertainable market values. 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. The cost of these
securities at June 30, 1998 aggregated $4,710,305. These securities may
also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Financial Statements
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment securities, at value (identified cost $204,795,449) ...................... $ 380,244,421
Cash ................................................................................ 1,458
Foreign currency holdings, at market (identified cost $3,787,936) ................... 3,784,729
Receivable for investments sold ..................................................... 1,208,558
Dividends and interest receivable ................................................... 1,685,682
Other assets ........................................................................ 8,464
--------------
Total assets ........................................................................ 386,933,312
LIABILITIES
Accrued management fee .............................................................. 337,090
Other payables and accrued expenses ................................................. 466,064
--------------
Total liabilities ................................................................... 803,154
--------------
Net assets, at value ................................................................ $ 386,130,158
==============
NET ASSETS
Net assets consist of:
Undistributed net investment income ................................................. 6,198,413
Net unrealized appreciation (depreciation) on:
Investment securities ............................................................ 175,448,972
Foreign currency related transactions ............................................ (22,772)
Accumulated net realized gain ....................................................... 17,091,606
Paid-in capital ..................................................................... 187,413,939
--------------
Net assets, at value ................................................................ $ 386,130,158
==============
NET ASSET VALUE per share ($386,130,158 / 16,315,155 shares of common stock
outstanding, 50,000,000 shares authorized, $.01 par value) ....................... $23.67
======
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------------------------------------
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Financial Statements
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $982,606) ...................................... $ 9,193,451
Interest ................................................................................... 656,735
-------------
9,850,186
Expenses:
Management fee ............................................................................. 2,301,063
Administrator's fee ........................................................................ 21,754
Custodian and accounting fees .............................................................. 554,632
Directors' fees and expenses ............................................................... 72,885
Legal ...................................................................................... 133,934
Auditing ................................................................................... 46,796
Reports to shareholders .................................................................... 35,587
Services to shareholders ................................................................... 13,406
Other ...................................................................................... 38,991
-------------
3,219,048
-------------
Net investment income ...................................................................... 6,631,138
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ................................................................................ 20,929,107
Foreign currency denominated transactions (net of CPMF tax $94,883) ........................ (667,063)
-------------
20,262,044
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................................ (69,593,432)
Foreign currency denominated transactions .................................................. (14,955)
-------------
(69,608,387)
-------------
Net loss on investment transactions ........................................................ (49,346,343)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................................... $(42,715,205)
============
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
[LOGO] The Brazil Fund, Inc.
Financial Statements
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 6,631,138 $ 9,820,789
Net realized gain from investment transactions ......................... 20,262,044 34,941,748
Net unrealized appreciation (depreciation) on investment
transactions during the period ...................................... (69,608,387) 19,046,094
------------- -------------
Net increase (decrease) in net assets resulting from operations ........ (42,715,205) 63,808,631
------------- -------------
Distributions to shareholders:
From net investment income ............................................. (1,712,726) (8,290,328)
------------- -------------
From net realized gains on investment transactions ..................... -- (44,702,055)
------------- -------------
Net asset value of shares issued to shareholders in reinvestment
of distributions .................................................... 1,128,338 631,634
------------- -------------
INCREASE (DECREASE) IN NET ASSETS ...................................... (43,299,593) 11,447,882
Net assets at beginning of period ...................................... 429,429,751 417,981,869
------------- -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $6,198,413 and $1,280,001, respectively) .................. $ 386,130,158 $ 429,429,751
============= =============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period .............................. 16,256,783 16,229,987
Shares issued to shareholders in reinvestment of distributions ......... 58,372 26,796
-------------- --------------
Shares outstanding at end of period .................................... 16,315,155 16,256,783
============== ==============
The accompanying notes are an integral part of the financial statements.
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</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
[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.
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1998(a) 1997(a) 1996(a) 1995(a) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period .......... $ 26.42 $ 25.75 $ 20.73 $ 31.10 $ 20.98 $ 14.12
------- ------- ------- ------- ------- -------
Net investment income (loss) .................. .41 .60 .55 .38 (.17) .10
Net realized and unrealized gain (loss) on
investment transactions ..................... (3.05) 3.33 5.34 (7.63) 12.75 7.58
------- ------- ------- ------- ------- -------
Total from investment operations .............. (2.64) 3.93 5.89 (7.25) 12.58 7.68
------- ------- ------- ------- ------- -------
Less distributions:
From net investment income .................... (.11) (.51) (.55) (.30) -- (.08)
From net realized gains on investments ........ -- (2.75) (.32) (.90) (2.46) (.74)
In excess of net realized gains on investments -- -- -- (.15) -- --
------- ------- ------- ------- ------- -------
Total distributions ........................... (.11) (3.26) (.87) (1.35) (2.46) (.82)
------- ------- ------- ------- ------- -------
Dilution resulting from rights offering (e) ... -- -- -- (1.73) -- --
------- ------- ------- ------- ------- -------
Broker and dealer manager fees and offering
costs (e) ................................... -- -- -- (.04) -- --
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 23.67 $ 26.42 $ 25.75 $ 20.73 $ 31.10 $ 20.98
======= ======= ======= ======= ======= =======
Market value, end of period ................... $ 18.13 $ 21.00 $ 22.25 $ 21.13 $ 33.00 $ 21.13
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN
Per share market value (%) .................... (13.30)** 10.16 9.29 (26.37) 69.81 60.89
Per share net asset value (%) (b) ............. (10.00)** 19.75 28.89(d) (23.31)(d) 61.09 54.19
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ........ 386 429 418 336 377 254
Ratio of operating expenses, net to average net
assets (%) (c) .............................. 1.52* 1.46 1.60 1.62 1.71 1.84
Ratio of operating expenses before expense
reductions, to average net assets (%) ....... 1.52* 1.46 1.62 1.67 1.71 1.84
Ratio of net investment income (loss) to average
net assets (%) .............................. 3.14* 1.91 2.22 1.54 (.58) .56
Portfolio turnover rate (%) ................... .56* 5.57 8.55 9.65 5.76 4.67
(a) Based on monthly average shares outstanding during the period.
(b) 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.
(c) For the year ended December 31, 1993, the ratio of expenses, net, including the Brazilian repatriation tax,
to average net assets was 2.22%.
(d) Total returns would have been lower had certain expenses not been reduced.
(e) 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.
* Annualized
** Not annualized
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
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, as amended, 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.
15
<PAGE>
The Brazil Fund, Inc.
Notes to Financial Statements
================================================================================
Effective January 1, 1996, the Brazilian withholding tax on dividend income was
reduced from 15% to 0%. This rate change applies to dividends paid from a
company's 1996 profits. Dividends paid from pre-1996 profits will continue to be
taxed at 15%.
The Fund is subject to a .20% Contribuicao Provisoria sobre Movimentacoes
Financeiras (CPMF) tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market.
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 dividend 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, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,184,875 and
$42,511,566, respectively.
C. Investment Advisory Agreements and Transactions with Affiliated Persons
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a monthly
fee at an annual rate equal to 1.20% per annum of the value of the Fund's
average weekly net assets up to $150 million; 1.05% per annum of the value of
the Fund's average weekly net assets on the next $150 million, 1.00% per annum
of the value of the Fund's weekly net assets on the next $200 million, and 0.90%
per annum of the value of the Fund's weekly net assets in excess of $500
million. For the six months ended June 30, 1998, the fee pursuant to the
Agreement amounted to $2,301,063, which was equivalent to an annual effective
rate of 1.09%.
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, 1998, the Administrator fee amounted to $21,754.
16
<PAGE>
The Brazil Fund, Inc.
Notes to Financial Statements
================================================================================
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, 1998, the amount charged to the Fund by SFAC aggregated $108,951,
of which $17,080 is unpaid at June 30, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, provides
shareholder communications services for the Fund. For the six months ended June
30, 1998 the amount charged by SSC aggregated $7,500, of which $1,250 is unpaid
at June 30, 1998.
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, 1998, Directors' fees and expenses
amounted to $72,885.
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>
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 investment portfolio, 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, 1998, and 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, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 6, 1998
18
<PAGE>
(logo) The Brazil Fund, Inc.
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>
(logo) The Brazil Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
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>
(logo) The Brazil Fund, Inc.
Investment Manager and Administrator
================================================================================
The investment manager and administrator of The Brazil Fund, Inc. (the
"Fund") is Scudder Kemper Investments, 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 six other
closed-end investment companies which invest in foreign securities: The
Argentina Fund, Inc., The Korea Fund, Inc., Scudder Global High Income Fund,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc. and Scudder
Spain and Portugal Fund, Inc. are traded on the New York Stock Exchange.
Directors and Officers
================================================================================
NICHOLAS BRATT*
President
JURIS PADEGS*
Chairman of the Board and Director
EDGAR R. FIEDLER
Director
KENNETH C. FROEWISS
Director
WILLIAM H. LUERS
Director
ROBERTO TEIXEIRA DA COSTA
Director and Resident Brazilian Director
RONALDO A. DA FROTA NOGUEIRA
Director and Resident Brazilian Director
WILSON NOLEN
Director
HAROLD WILLIAMS
Director
EDMUND B. GAMES, JR.*
Vice President
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
JUDITH A. HANNAWAY*
Vice President
JERARD K. HARTMAN*
Vice President
PAUL ROGERS*
Vice President
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President, Treasurer and Secretary
JOHN R. HEBBLE*
Assistant Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
21
