[LOGO]
The Brazil Fund, Inc.
Semiannual Report
December 31, 1999
A closed-end investment company seeking long-term capital appreciation through
investment primarily in the 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
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
For Fund information: 1-800-349-4281
Transfer Agent, Registrar and Dividend
Reinvestment Plan Agent
For account information: 1-800-426-5523
EquiServe
Attn. Investor Relations Department
P.O. Box 8209
Boston, MA 02266-8209
Custodian
Brown Brothers Harriman & Co.
Legal Counsel
Debevoise & Plimpton
Independent Accountants
PricewaterhouseCoopers LLP
New York Stock Exchange Symbol -- BZF
Contents
- -----------------------------------------
In Brief ........................... 3
Letter to Stockholders ............. 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
- --------------------------------------------------------------------------------
This report is sent to the stockholders 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>
The Brazil Fund, Inc.
In Brief
- --------------------------------------------------------------------------------
o A rebound in global growth provided a more stable footing for Brazil's
economy and gave the government an opportunity to address the need for
reform. Although many risks remain in place, the stock market reacted
positively to the improved outlook for Brazil.
o Management's focus on companies with strong cash flows and healthy
financial positions prompted it to increase the fund's weighting in
consumer, telecommunications, and cyclical stocks, and to trim its holdings
in utilities.
Letter to Stockholders
- --------------------------------------------------------------------------------
Dear Stockholders:
Stronger global growth and a rise in commodity prices provided the spark for
a rally in Brazil's stock market in the second half of 1999. During the last two
years, market sentiment has been dampened by concerns over the country's fiscal
imbalances and their effects on interest rates and the real. However, the recent
improvement in the economic backdrop has alleviated pressure on the public
sector and provided the government with an opportunity to enact some meaningful
reforms. In addition, the upturn in growth has improved the outlook for
corporate earnings and made the valuations of Brazil's stock market increasingly
attractive in the wake of the January 1999 devaluation.
The improvement in the investment backdrop in Brazil was reflected in the
69.21% return of the IFC Brazil Index over the six months ended December 31. The
market's strongest showing came in the final two months of the period, during
which time the Index jumped 41.81%. In this environment, the fund's net asset
value rose 42.39% to $23.86 over the six-month period, while its share price
quoted on the New York Stock Exchange rose 27.47% to $18.50, which represented a
discount of 22.46% to NAV.
Economic Backdrop
The resurgence of the global economy has manifested itself in Brazil in
several ways. Foreign direct investment is on the rise, unemployment is
beginning to fall, and industrial output and capacity utilization are
increasing. Gross domestic product growth is forecast at 3.0-3.5% for 2000,
versus the 0.9% growth registered in 1999. Rising commodity prices have provided
a lift to the entire region by contributing to stronger corporate earnings and,
by extension, a larger inflow of tax revenues to the government. Rising exports
have slowed the rate of increase in the current account deficit and allowed the
exchange rate to stabilize at roughly 1.8 reals/dollar. Foreign exchange
reserves have also stabilized, at roughly $40 billion. In turn, the stronger
exchange rate picture has given Brazil's government the leeway necessary to
reduce overnight interest rates from 45% at the start of the year to 19% by
December 31.
The positive scenario that has unfolded in Brazil marks a departure from the
trend that has been in place for the last two years. The country's economy has
been on fragile ground since the Asian crisis first rattled the emerging markets
in mid-1997. When the financial crises of 1998 subsequently slowed global growth
and sparked asset outflows from the emerging markets economies, the task of
managing the country's "twin deficits" became increasingly difficult. While
these deficits remain in place following the devaluation of the real, the
revival of global growth has reduced the pressure they have exerted on Brazil's
economy. The improved external
3
<PAGE>
The Brazil Fund, Inc.
Letter to Stockholders
- --------------------------------------------------------------------------------
scenario has provided the breathing room necessary for Congress and President
Cardoso to work together to make meaningful progress toward easing the country's
fiscal difficulties.
The stronger relationship between the two branches of Brazil's government
became evident when President Cardoso called a special session of Congress in
January 2000 to address the required reforms. While the immediate impact of the
reforms under consideration is likely to be small, the importance of a positive
outcome for both the Fiscal Responsibility Law and the Fiscal Stabilization Fund
cannot be understated. Positive relations within the government and the
appearance of progress on the reform front should lead to a reduction in
"country risk" and allay the concerns of both the IMF and the investment
community. The perception of lower risk would help the government reduce
domestic interest rates and keep the real in a stable trading range. This, in
turn, should enable the central bank to continue to target inflation, which it
projects to fall to 6% in the year 2000.
There are clearly risks to the continuation of this positive scenario.
Brazil's credibility has been damaged in the past by the fact that progress is
generally only made when the government is under duress. The rising interest
rate environment in the United States, a prolonged correction in the U.S. stock
markets, or the appearance of inflation either globally or at the consumer price
level in Brazil could all serve to increase investor concerns and upset the
stable balance that the government is trying to achieve. Unfortunately, there is
no magic bullet that will erase the profligacy of the Brazilian government over
the past decades. Instead, any success must be gained by a consistent and
unrelenting effort to reduce both the fiscal deficits and the cost and level of
Brazil's debt.
Fund Strategy
Our fundamental investment strategy remains unchanged. We are very much
bottom-up investors focused on well-managed companies that we believe can
generate sustainable levels of cash flow. We look at balance sheets quite
closely and are very conscious of credit risk and the difficulties that come
with leverage in a challenging investment environment like Brazil. Most
important, we are looking for those companies that maintain the discipline of a
healthy financial condition in order to offset the financial weakness at the
government level. Although volatile market conditions will depress the stock
prices of even higher quality companies, we believe that a focus on such firms
will enable the fund to outperform over the long term.
During the last six months, we have cut back on the fund's positions in
electric utilities such as Cemig, Eletrobras, and Forca Luz based on the
utilities' high debt positions and our belief that their cash flows are
insufficient to finance the expansion necessary for future growth. We have
shifted the proceeds from our sales of utilities into economically sensitive
stocks, such as those in the retail sector. As Brazil's economy recovers over
the coming year, consumer purchasing power should emerge as a powerful force. In
this regard, a parallel can be drawn to the events that took place in Mexico
following the peso devaluation of 1994. After the currency was floated, Mexican
export stocks rallied because the cheaper peso allowed these companies to
achieve higher profit margins. The rally in exporters made the relative
valuations of consumer stocks more attractive, as did the improvement in
consumption trends that was fostered by the economic recovery. As a result, the
consumer sector staged a strong rally. Our belief that the same scenario is
unfolding in Brazil forms the basis of our positive outlook on consumer stocks
in that country. We therefore continued to hold substantial positions in food
and beverage retailing.
4
<PAGE>
The Brazil Fund, Inc.
Letter to Stockholders
- --------------------------------------------------------------------------------
We remain optimistic on the prospects for the fixed-line telecommunications
sector. Despite the group's sharp run-up in 1999, we believe that it can
continue to rise due to its powerful cash flows and strong revenue growth rate,
as well as the burgeoning interest in emerging technologies.
In the past six months, we also increased the fund's position in energy,
steel, and paper stocks as cyclicals became increasingly attractive in the
higher-growth environment that emerged in both Brazil and the global economy. In
addition to benefiting from the increasingly positive pricing scenario for these
sectors in the global markets, steel and paper companies should be able to
capitalize on the pickup in domestic growth. A large percentage of these
industries' production will be shipped to customers within Brazil, and low
shipping costs translate into high margins. Consequently, the changes in the
price of the underlying commodity can have a substantial impact on earnings.
Outlook
In our view, the economic scenario in Latin America is more favorable now
than it has been at any point in the last five years. The crises that Brazil in
particular and Latin America in general have experienced during this period have
been severe, but the economies have survived and many companies have emerged
stronger and better positioned to compete in an increasingly global marketplace.
In addition, each crisis has brought with it valuable lessons that are being
absorbed by the region's decision-makers. While the risk of a potential
correction in the U.S. stock market looms as a potential obstacle to further
gains in 2000, the stage is set for strong, consumer-led growth across the
region. We believe that in this environment, our focus on companies with
excellent earnings prospects and attractive valuations will position the fund to
take advantage of the rebound in Brazil.
Respectfully,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
and Director
5
<PAGE>
<TABLE>
<CAPTION>
The Brazil Fund, Inc.
Investment Summary as of December 31, 1999
- -------------------------------------------------------------------------------------------
Historical Total Return (%)
Information ------------------------------------------------------------------
Market Value Net Asset Value(a) Index(b)
------------------- ----------------------- ----------------
Average Average Average
Cumulative Annual Cumulative Annual Cumulative Annual
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Current Quarter 41.90 -- 49.87 -- 43.20 --
One Year 74.92 74.92 64.43 64.43 69.21 69.21
Three Year 31.77 9.63 46.85 13.66 40.15 11.91
Five Year 6.03 1.18 45.15 7.74 84.61 13.04
Ten Year 222.38 12.42 183.99 11.00 537.41 20.35
- -------------------------------------------------------------------------------------------
</TABLE>
Per Share Information and Returns(a)
Yearly Periods ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Total Return
1990 -67.98
1991 131.16
1992 6.43
1993 54.19
1994 61.09
1995 -23.31
1996 28.89
1997 19.75
1998 -25.42
1999 64.43
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value ..... $ 5.97 $13.80 $14.12 $20.98 $31.10 $20.73 $25.75 $26.42 $14.92 $23.86
Income Dividends .... $ .12 $ -- $ -- $ .08 $ -- $ .30 $ .55 $ .51 $ .75 $ .45
Capital Gains and
Other Distributions . $ -- $ -- $ .66 $ .74 $ 2.46 $ 1.05 $ .32 $ 2.75 $ 2.27 $ --
Total Returns % ..... -67.98 131.16 6.43 54.19 61.09 -23.31(c) 28.89(c) 19.75 -25.42 64.43
</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) Bovespa Stock Index ($)
(c) Total returns would have been lower had certain expenses not been reduced.
Past results are not necessarily indicative of future performance of the
Fund.
6
<PAGE>
The Brazil Fund, Inc.
Portfolio Summary as of December 31, 1999
- --------------------------------------------------------------------------------
Diversification
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Securities 98%
Cash Equivalents 2%
----
100%
----
- --------------------------------------------------------------------------------
Sectors
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Sector breakdown of the Fund's equity securities
Telecommunications 23%
Banking 19%
Petroleum 13%
Food and Beverage 10%
Utilities 9%
Mining 6%
Forest Products 5%
Tobacco 3%
Electrical Equipment 3%
Other 9%
----
100%
----
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings (69% of Portfolio)
1. Banco Itau S.A. 6. Banco Bradesco S.A.
2. Petroleo Brasileiro S.A. 7. Tele Norte Leste Participacoes S.A.
3. Tele Centro Sul Participacoes S.A. 8. Companhia Paranaese de
Engergia Copel
4. Companhia Cervejaria Brahma
9. Embratel Participacoes S.A.
5. Companhia Vale do Rio Doce
10. Aracruz Celulose S.A.
7
<PAGE>
The Brazil Fund, Inc.
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Repurchase Agreements 1.8%
Donaldson, Lufkin & Jenrette, 2.25%, to be
repurchased at $7,195,349 on 1/3/2000
(Cost $7,194,000) (c) ....................... 7,194,000 7,194,000
-----------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Equity Securities 98.2%
Banking 19.0%
Banco Bradesco S.A. (pfd.) ................... 2,833,692,307 22,227,191
Banco Bradesco S.A. (pfd.) Rights* ........... 184,003,238 730,309
Banco Itau S.A. (pfd.) ....................... 600,242,080 51,501,535
-----------
74,459,035
-----------
Chemicals 0.8%
White Martins S.A. (voting) .................. 4,273,846 3,004,586
-----------
Construction 0.2%
Odebrecht S.A. (voting) (b) .................. 575,630,000 920,881
-----------
Containers 0.3%
Dixie Toga S.A. (pfd.) ....................... 4,349,000 1,300,006
-----------
Electrical Equipment 2.5%
Weg S.A. (pfd.) .............................. 16,226,600 9,880,576
-----------
Food & Beverage 9.7%
Companhia Cervejaria Brahma (pfd.) ........... 39,257,913 28,685,549
Sadia S.A. Industria e Comercio (pfd.) ....... 10,320,045 9,368,876
-----------
38,054,425
-----------
Forest Products 4.7%
Aracruz Celulose S.A. "B" (pfd.) ............. 6,101,599 14,793,798
Votorantim Celulose e Papel S.A. (pfd.) ...... 80,000,000 3,675,616
-----------
18,469,414
-----------
Glass 0.7%
Companhia Vidraria Santa Marina (voting) ..... 2,340,236 2,837,042
-----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
The Brazil Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Iron & Steel 2.9%
Companhia Siderurgica Nacional (voting) ........ 134,400,000 5,207,861
Gerdau S.A. (pfd.) ............................. 231,800,000 6,159,092
----------
11,366,953
----------
Mining 6.0%
Companhia Vale do Rio Doce (voting) pfd. (b) ... 906,104 23,423,779
Companhia Vale Do Rio Doce "A" (debenture) (b) . 922,104 --
----------
23,423,779
----------
Oil/Gas Transmission 0.5%
Ultrapar Participacoes S.A. (pfd.)* ............ 178,148,000 2,061,054
----------
Petroleum 12.6%
Petrobras Distribuidora S.A. (pfd.) ............ 171,200,000 2,843,067
Petroleo Brasileiro S.A. (pfd.) ................ 183,739,999 46,786,825
----------
49,629,892
----------
Real Estate 0.3%
Sao Carlos Empreendimentos (pfd)* .............. 499,904,416 1,134,574
----------
Retail 2.8%
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar (voting) (pfd.) ................. 325,136,400 10,798,884
----------
Telecommunications 22.6%
Embratel Participacoes S.A. (pfd.) ............. 588,223,400 15,141,095
Tele Centro Sul Participacoes S.A. (pfd.) ...... 1,594,456,600 29,117,699
Tele Norte Leste Participacoes S.A. (pfd.) ..... 779,835,900 20,936,641
Telecomunicacoes de Sao Paulo S.A. (pfd.) ...... 537,461,530 12,644,404
Telecomunicacoes do Parana S.A. (pfd.) ......... 18,872,900 6,163,754
Telesp Participacoes S.A. (pfd.) ............... 200,256,600 4,855,377
----------
88,858,970
----------
Textiles 0.7%
Sao Paulo Alpargatas S.A. (pfd.) ............... 47,579,600 2,896,917
----------
Tobacco 3.2%
Souza Cruz S.A. (voting) ....................... 1,700,143 12,573,435
----------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
The Brazil Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Utilities 8.7%
Centrais Eletricas Brasileiras S.A. "B" (pfd.) . 455,000,000 10,855,522
Companhia Energetica de Minas Gerais (pfd.) .... 293,019,229 6,569,211
Companhia Paranaense de Energia Copel "B" (pfd.) 1,140,700,000 11,050,235
Companhia Paranaense de Energia Copel (voting) . 841,742,700 5,591,427
-----------
34,066,395
-----------
Total Common Stocks (Cost $171,958,624) ........ 385,736,818
-----------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $179,152,624) (a) ....................... 392,930,818
===========
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost of the investment portfolio for federal income tax purposes was
$179,181,232. At December 31, 1999, net unrealized appreciation for all
securities based on tax cost was $213,749,586. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of value over tax cost of $227,573,419 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value of $13,823,833.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $24,344,660 (6.2% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values as of December 31, 1999. 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 December 31, 1999 aggregated
$7,953,643. These securities may also have certain restrictions as to
resale.
(c) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
The Brazil Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $179,152,624) $ 392,930,818
Cash .................................................. 522
Foreign currency, at value (cost $1,014,849) .......... 1,481,757
Dividends receivable .................................. 3,169,638
Other assets .......................................... 2,084
-----------
Total assets .......................................... 397,584,819
-----------
LIABILITIES
Dividends payable ..................................... 4,928,800
Accrued management fee ................................ 332,028
Other accrued expenses and payables ................... 361,376
-----------
Total liabilities ..................................... 5,622,204
-----------
Net assets, at value .................................. $ 391,962,615
=============
NET ASSETS
Net assets consist of:
Undistributed net investment income ................... 285,792
Net unrealized appreciation (depreciation) on:
Investments ....................................... 213,778,194
Foreign currency related transactions ............. 96,760
Accumulated net realized gain (loss) .................. (10,665,670)
Paid-in capital ....................................... 188,467,539
-----------
Net assets, at value .................................. $ 391,962,615
=============
Net asset value per share ($391,962,615 / 16,429,333
shares of common stock outstanding, 50,000,000
shares authorized, $.01 par value) ................... $ 23.86
=============
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
The Brazil Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations
Six Months Ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $846,470) $ 5,914,617
Interest ............................................ 234,582
Insurance proceeds .................................. 410,400
--------------
Total Income ........................................ 6,559,599
--------------
Expenses:
Management fee ...................................... 1,610,808
Administrator's fee ................................. 25,000
Custodian and accounting fees ....................... 329,872
Directors' fees and expenses ........................ 56,644
Legal ............................................... 19,681
Auditing ............................................ 39,716
Reports to shareholders ............................. 43,766
Services to shareholders ............................ 17,295
Other ............................................... 31,200
--------------
2,173,982
--------------
Net investment income (loss) ........................ 4,385,617
--------------
Net realized and unrealized gain (loss)
on investment transactions
Net realized gain (loss) from:
Investments ......................................... (4,474,927)
Foreign currency related transactions (including
CPMF tax of $18,222) ............................... (515,519)
--------------
(4,990,446)
--------------
Net unrealized appreciation (depreciation)
during the period on:
Investments ......................................... 117,300,445
Foreign currency related transactions ............... 351,253
--------------
117,651,698
--------------
Net gain (loss) on investment transactions .......... 112,661,252
-------------
Net increase (decrease) in net assets
resulting from operations .......................... $ 117,046,869
=============
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
The Brazil Fund, Inc.
Financial Statements
- -------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------
Six Months
Ended Six Months Year Ended
December 31, Ended June 30, December 31,
Increase (Decrease) in Net Assets 1999 1999 1998
- -------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C>
Net investment income (loss) ........................... $ 4,385,617 $ 4,226,542 $ 13,429,010
Net realized gain (loss) on investment transactions .... (4,990,446) (4,020,618) 35,040,732
Net unrealized appreciation (depreciation) on investment
transactions during the period ..................... 117,651,698 37,683,709 (186,495,040)
------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations ......................................... 117,046,869 37,889,633 (138,025,298)
------------- ------------- -------------
Distributions to shareholders:
From net investment income ............................. (4,928,800) (2,463,256) (12,154,425)
------------- ------------- -------------
From net realized gains ................................ -- -- (37,035,402)
------------- ------------- -------------
Reinvestment of distributions .......................... -- 1,075,205 1,128,338
------------- ------------- -------------
Increase (decrease) in net assets ...................... 112,118,069 36,501,582 (186,086,787)
Net assets at beginning of period ...................... 279,844,546 243,342,964 429,429,751
------------- ------------- -------------
Net assets at end of period (including undistributed net
investment income of $285,792, $828,975 and
$1,454,663, respectively) .......................... $ 391,962,615 $ 279,844,546 $ 243,342,964
============= ============= =============
Other Information
Shares outstanding at beginning of period .............. 16,429,333 16,315,155 16,256,783
Shares issued to shareholders in reinvestment of
distributions ...................................... -- 114,178 58,372
------------- ------------- -------------
Shares outstanding at end of period .................... 16,429,333 16,429,333 16,315,155
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
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 Years Ended December 31,
----------------------- -------------------------------------------------------
Dec. 31, June 30,
1999 1999(d) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.03 $ 14.92 $ 26.42 $ 25.75 $ 20.73 $ 31.10 $ 20.98
------- ------- ------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income (loss) (a) ... .27 .26 .82 .60 .55 .38 (.17)
Net realized and unrealized gain
(loss) on investment transactions .. 6.86 2.00 (9.30) 3.33 5.34 (7.63) 12.75
------- ------- ------- ------- ------- ------ -------
Total from investment operations ... 7.13 2.26 (8.48) 3.93 5.89 (7.25) 12.58
------- ------- ------- ------- ------- ------ -------
Less distributions from:
Net investment income .............. (.30) (.15) (.75) (.51) (.55) (.30) --
Net realized gains on investment
transactions ....................... -- -- (2.27) (2.75) (.32) (.90) (2.46)
In excess of net realized gains on
investment transactions ............ -- -- -- -- -- (.15) --
------- ------- ------- ------- ------- ------ -------
Total distributions ................ (.30) (.15) (3.02) (3.26) (.87) (1.35) (2.46)
------- ------- ------- ------- ------- ------- -------
Dilution resulting from rights
offering .......................... -- -- -- -- -- (1.77) --
------- ------- ------- ------- ------- ------ -------
Net asset value, end of period ..... $ 23.86 $ 17.03 $ 14.92 $ 26.42 $ 25.75 $ 20.73 $ 31.10
======= ======= ======= ======= ======= ======= =======
Market value, end of period ........ $ 18.50 $ 14.75 $ 10.88 $ 21.00 $ 22.25 $ 21.13 $ 31.10
======= ======= ======= ======= ======= ======= =======
Total Return
Per share market value (%) ......... 27.47** 37.22** (31.61) 10.16 9.29 (26.37) 69.81
Per share net asset value (%) (b) .. 42.39** 15.48** (25.42) 19.75 28.89(c) (23.31)(c) 61.09
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) 392 280 243 429 418 336 377
Ratio of expenses before expense
reductions (%) ..................... 1.52* 1.67* 1.56 1.46 1.62 1.67 1.71
Ratio of expenses after expense
reductions (%) .................... 1.52* 1.67* 1.56 1.46 1.60 1.62 1.71
Ratio of net investment income
(loss) (%) ......................... 2.93* 3.47* 3.57 1.91 2.22 1.54 (.58)
Portfolio turnover rate (%) ........ 9* 4* 17 6 9 10 6
</TABLE>
(a) Effective December 31,1995, 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) Total returns would have been lower had certain expenses not been reduced.
(d) On May 26,1999, the Board of Directors of the Fund changed the fiscal year
end from December 31 to June 30.
* Annualized ** Not annualized
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 (the "1940 Act"), as a closed-end, non-diversified
management investment company. On May 26,1999, the Board of Directors of the
Fund changed the fiscal year end from December 31 to June 30.
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. Investments are stated at value as of the close of regular
trading on the New York Stock Exchange. 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. Money market investments purchased with an
original 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.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, 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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
Taxes. 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. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At June 30, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $4,361,000 which may be applied against any realized net taxable
gains of each succeeding year until fully utilized or until June 30, 2007.
15
<PAGE>
The Brazil Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund is subject to a .38% Contribuicao Provisoria sobre Movimentacao
Financiera (CPMF) tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
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 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis. All discounts
are accreted for both tax and financial reporting purposes. Insurance proceeds
represent a refund of litigation expenses that were incurred in prior years.
B. Purchases and Sales of Securities
---------------------------------
During the six months ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $20,020,103 and
$11,928,693, respectively.
C. Related Parties
---------------
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Manager"), the Fund agrees to pay
the Manager 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 average weekly net assets on
the next $200 million, and 0.90% per annum of the value of the Fund's average
weekly net assets in excess of $500 million. For the six months ended December
31, 1999, the fee pursuant to the Agreement amounted to $1,610,808, which was
equivalent to an annualized effective rate of 1.13%.
The Fund and the Manager have 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
December 31, 1999, the Administrator fee amounted to $25,000, of which $7,705 is
unpaid at December 31, 1999.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the
16
<PAGE>
The Brazil Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
six months ended December 31, 1999, the amount charged to the Fund by SFAC
aggregated $81,364, of which $42,534 is unpaid at December 31, 1999.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the six months ended
December 31, 1999, the amount charged to the Fund by SSC aggregated $7,500, of
which $3,750 is unpaid at December 31, 1999.
The Fund pays each Director not affiliated with the Manager 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 December 31, 1999, Directors' fees and
expenses amounted to $56,644.
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 shareholders
of at least two-thirds of the Fund's outstanding 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.
E. Line of Credit
--------------
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes. The Participants
are charged an annual commitment fee which is allocated pro rata among each of
the Participants. Interest is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a maximum of 5 percent of its net
assets under the agreement.
17
<PAGE>
The Brazil Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and the Shareholders 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 December 31, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000
18
<PAGE>
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 EquiServe, the Plan Agent.
Automatic Participation
Each stockholder of record is automatically a participant in the Plan unless
the stockholder 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.
Stockholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by EquiServe, 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 stockholder 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 stockholder 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>
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 stockholder 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 EquiServe, P.O. Box 8209, Boston, MA 02266-8209, 1-800-426-5523.
20
<PAGE>
The Brazil Fund, Inc.
Investment Manager and Administrator
- --------------------------------------------------------------------------------
The investment manager of The Brazil Fund, Inc. is Scudder Kemper Investments
Inc. (the "Manager"), one of the most experienced investment management firms in
the world. Established in 1919, the firm manages investments for institutional
and corporate clients, retirement and pension plans, insurance companies, mutual
fund investors, and individuals. The Manager has offices throughout the United
States and has subsidiaries in the United Kingdom, Switzerland, Hong Kong, and
Japan.
The Manager has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was originally
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. The
Manager's clients which invest primarily in foreign securities include thirty
open-end investment companies as well as portfolios for institutional investors.
The Manager also manages the assets of other closed-end investment companies
which invest primarily in foreign securities, including: The Argentina Fund,
Inc., The Korea Fund, Inc., Scudder Global High Income Fund, Inc., and Scudder
New Asia Fund, Inc. which are traded on the New York Stock Exchange.
Directors and Officers
- --------------------------------------------------------------------------------
JURIS PADEGS*
Chairman of the Board and Director
NICHOLAS BRATT*
President
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
ANN M. McCREARY*
Vice President
PAUL ROGERS*
Vice President
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN MILLETTE*
Vice President and Secretary
JOHN R. HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
21
<PAGE>
<PAGE>
