[LOGO]
The Brazil Fund, Inc.
Annual Report
June 30, 2000
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.
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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
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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
[LOGO] Contents
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Letter to Stockholders ............................... 3
Investment Summary ................................... 5
Portfolio Summary .................................... 6
Investment Portfolio ................................. 7
Financial Statements ................................. 10
Financial Highlights ................................. 13
Notes to Financial Statements ........................ 14
Report of Independent Accountants .................... 17
Tax Information ...................................... 18
Dividend Reinvestment
and Cash Purchase Plan ............................ 19
Stockholder Meeting Results .......................... 22
Investment Manager and Administrator ................. 23
Directors and Officers ............................... 23
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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.
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2
<PAGE>
[LOGO] The Brazil Fund, Inc.
Letter to Stockholders
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Dear Stockholders:
Despite the volatility that rocked the global equity markets during the
second quarter of this year, stocks in Brazil produced impressive returns during
the twelve-month period ended June 30, 2000. On a broad, macroeconomic level,
the country's market benefited from stronger global growth and the euphoria that
gripped stock markets worldwide during the fourth quarter of 1999 and the first
quarter of 2000. And on the country-specific level, stocks were boosted by
Brazil's improved growth prospects, falling interest rates, and the successful
implementation of reforms by the country's government. In this environment, the
net asset value of the Brazil Fund rose 43.28% to $24.01, versus a return of
39.61% for its unmanaged benchmark, the IFC Brazil Index. The fund's shares
traded on the NYSE posted a one-year total return of 17.99% and closed at
$17.13, a discount of 28.65% to NAV.
Investment Backdrop
Brazil has not yet fully overcome many of the problems that have worried
investors over the past several years, but it appears to have come through the
1999 currency devaluation more strongly than was expected. While ordinarily
sharp declines in a country's exchange rate will result in runaway inflation,
the fact that the devaluation occurred following a period of deep recession --
meaning that there was enough production capacity and available labor to absorb
stronger growth -- has allowed prices to remain relatively stable. We believe
that price levels will remain steady due to the combination of stabilized oil
import prices, market deregulation and competition, and the still-sizable
economic output gap. The favorable inflation outlook has been positive for
interest rates, as it has allowed the central bank to cut the Selic (Brazil's
overnight rate) to 17% from 21% a year ago.
We are also encouraged by the strength of the economy, which is expected to
grow at 4.0% in 2000 and 3.9% in 2001. This development has translated into
lower unemployment and higher real wages, which in turn has led to stronger
sales for autos and other consumer durable goods. Meanwhile, the current account
deficit has been expanding at a slower rate, and is fully covered by foreign
direct investment and privatization inflows. If oil prices remain stable and
soft commodity prices (e.g., soy and coffee) rebound from their historic lows,
the trade account should improve as well. We believe that these developments,
taken together, show that a virtuous cycle has emerged which should help
alleviate the potential difficulties associated with the country's high level of
public and private sector debt.
While all of these factors are positive, we believe that the most important
event of the past year has been the government's effectiveness in enacting
reforms. The improved economic environment has boosted confidence, which in turn
has helped improve the popularity of President Cardoso's programs within
Congress. The President's lobbying aided the passage of minimum wage legislation
and the Fiscal Responsibility Law, which in our view demonstrates that he is
growing stronger politically, although his personal popularity remains low among
the public. A more recent proposal offers better treatment for minority
shareholders as well as a strengthening of the Comissao de Valores Mobilario,
Brazil's version of the SEC. Tax reform is also on the agenda, although we do
not expect any significant changes to be implemented until 2002. While there
will be no quick fixes to Brazil's remaining difficulties, particularly in the
area of social security reform, we are encouraged by the steady progress that is
being made by the Brazilian government. Additionally, as the economic situation
improves so should Cardoso's popularity, which should lead to further progress
in reforms.
3
<PAGE>
[LOGO] The Brazil Fund, Inc.
Letter to Stockholders
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Fund Strategy
The portfolio remains concentrated in well-managed, reasonably valued
companies with strong cash flows and sound balance sheets. As a result, the fund
tends to have a relatively conservative positioning in relation to its
benchmark. While this approach is often helpful to performance when Brazil's
market is falling, it can also hurt at the times when market participants are
optimistic and less risk-averse. This divergence is evident in the fund's
performance during the past year. When stocks in the TMT -- technology, media,
and telecommunications -- sectors were rallying, the fund generally
underperformed because of its underweighting in this area. Most notably, we were
hurt by our relatively small position in cellular companies -- many of which do
not possess the strong cash flow characteristics we require in order to build a
position -- during the early part of the year. As the TMT bubble burst, however,
our defensive approach helped relative performance, as we were able to avoid the
worst of the market's volatility. These events reinforce our view that even at
the times when the global markets are being carried away by the latest
investment mania, it pays to maintain a steady, long-term approach.
In recent months, we have elected to invest money in stocks that stand to
benefit from a continued upturn in Brazil's economy. For example, we have added
to our holdings in Gerdau, the steel company, and increased our weighting in the
pulp and paper company Votorantim Celulose e Papel. The cyclical industries are
interesting because a pickup in the local economy means that a higher proportion
of these companies' total sales go to customers within Brazil. Since it costs
less to ship product within the country -- rather than export it -- cyclical
companies can earn higher overall margins when local sales increase, a shift
that has a direct impact on their bottom lines.
With the delisting of Telesp Participacoes de Sao Paulo following the tender
offer from Telefonica de Espana, we sold our stake in that company and
redeployed some of the proceeds into telephone stocks including Embratel and
others within the fixed and wireless sectors. In wireless, we have focused on
the companies whose survival in this highly competitive area is assured, such as
Telesp Celular.
Outlook
We remain positive on the outlook for Brazil's economy, but it is likely that
we will need to see an improvement in corporate earnings before the market can
move substantially higher. While we feel that a continuation of the trends we
have witnessed in the first six months of 2000 -- lower interest rates,
improvements in the economic backdrop, and continued efforts at reform by the
government -- will provide a strong underpinning for stock prices, valuations
have risen to levels that, in our view, will be difficult to sustain without
continued strength in earnings growth. While it is likely that earnings will in
fact surprise to the upside through the second half of the year, the market's
valuation levels make it vulnerable to disappointment.
We continue to encourage investors to stay focused on the long-term trends
that are developing in Brazil even during times of market volatility. Although
the problems of the late 1990s have not been completely solved, we believe that
Brazil is finally moving in the right direction.
Respectfully,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
and Director
4
<PAGE>
[LOGO] The Brazil Fund, Inc.
Investment Summary as of June 30, 2000
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<TABLE>
<CAPTION>
Total Return (%)
Historical ----------------------------------------------------------------------
Infromation 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 -1.08 -- -.41 -- -9.77 --
One Year 17.99 17.99 43.28 43.28 39.61 39.61
Three Year -13.48 -4.71 4.46 1.46 -20.65 -7.42
Five Year 27.63 5.00 83.73 12.94 136.74 18.81
Ten Year 270.80 14.00 438.25 18.33 1,069.50 27.88
</TABLE>
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Per Share Information and Returns (a)
Yearly periods ended June 30
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value...... $14.03 $14.27 $18.44 $22.38 $24.47 $26.27 $35.71 $23.67 $17.03 $24.01
Income Dividends..... $ -- $ -- $ -- $ .08 $ -- $ .30 $ .61 $ .56 $ .79 $ 0.30
Capital Gains and
Other Distributions.. $ -- $ .28 $ .53 $ .93 $ 2.36 $ .81 $ .75 $ 2.32 $ 2.27 $ --
Total Return (%)..... 41.72 3.01 33.96 26.58 18.36(c) 22.24(c) 43.88(c) 23.82 -4.31 43.28
</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 ($)
(c) Total returns would have been lower had certain expenses not been reduced.
Past results are not necessarily indicative of future performance of the
Fund.
5
<PAGE>
[LOGO] The Brazil Fund, Inc.
Portfolio Summary as of June 30, 2000
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Diversification
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Equity Securities 95%
Cash Equivalents 5%
-----
100%
=====
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Sectors
Sector breakdown of the Fund's equity securities
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Telecommunications 21%
Banking 19%
Petroleum 16%
Food and Beverage 10%
Utilities 9%
Mining 7%
Forest Products 4%
Tobacco 3%
Electrical Equipment 2%
Other 9%
-----
100%
=====
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Ten Largest Equity Holdings (71% of Portfolio)
1. Petroleo Brasileiro S.A.
2. Banco Itau S.A.
3. Companhia Cervejaria Brahma
4. Companhia Vale do Rio Doce
5. Tele Centro Sul Participacoes S.A.
6. Banco Bradesco S.A.
7. Tele Norte Leste Participacoes S.A.
8. Companhia Paranaense de Energia-Copel
9. Embratel Participacoes S.A.
10. Aracruz Celulose S.A.
6
<PAGE>
[LOGO] The Brazil Fund, Inc.
Investment Portfolio as of June 30, 2000
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Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
Short-Term Notes 2.0%
Federal Home Loan Discount Note, 6.57%,
7/3/2000** (Cost $7,761,166) ......... 7,764,000 7,761,166
-------------
--------------------------------------------------------------------------------
Shares
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Equity Securities 98.0%
Banking 18.8%
Banco Bradesco S.A. (pfd.) ............. 2,378,692,307 20,724,456
Banco Itau S.A. (pfd.) ................. 576,779,480 50,732,268
-------------
71,456,724
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Construction 0.2%
Odebrecht S.A. (voting) (b) ............ 259,830,000 695,716
-------------
Containers 0.4%
Dixie Toga S.A. (pfd.)* ................ 4,349,000 1,327,386
-------------
Electrical Equipment 2.3%
Weg S.A. (pfd.) ........................ 16,226,600 8,824,677
-------------
Food & Beverage 9.7%
Companhia Cervejaria Brahma (pfd.) ..... 36,253,913 30,781,624
Sadia S.A. Industria e Comercio ........ 10,320,045 6,185,155
-------------
36,966,779
-------------
Forest Products 4.2%
Aracruz Celulose S.A. "B" (pfd.) ....... 6,101,599 11,614,031
Votorantim Celulose e Papel S.A. (pfd) . 112,600,000 4,154,078
-------------
15,768,109
-------------
Glass 0.8%
Companhia Vidraria Santa Marina (voting) 2,340,236 3,168,799
-------------
Iron & Steel 2.9%
Companhia Siderurgica Nacional (voting) 94,400,000 2,964,013
Gerdau S.A. (pfd.) ..................... 663,600,000 8,101,663
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11,065,676
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The accompanying notes are an integral part of the financial statements.
7
<PAGE>
[LOGO] The Brazil Fund, Inc.
<TABLE>
<CAPTION>
Investment Portfolio
------------------------------------------------------------------------------------------
Shares Value ($)
------------------------------------------------------------------------------------------
<S> <C> <C>
Mining 6.7%
Companhia Vale do Rio Doce "A" (debenture) (b) ......... 922,104 --
Companhia Vale do Rio Doce (pfd) ...................... 906,104 25,594,170
------------
25,594,170
------------
Oil/Gas Transmission 0.5%
Ultrapar Participacoes S.A. (pfd.) ..................... 178,148,000 1,814,104
------------
Petroleum 15.6%
Petrobras Distribuidora S.A. (pfd.)* ................... 269,800,000 3,668,202
Petroleo Brasileiro S.A. (pfd.) ........................ 183,739,999 55,570,644
------------
59,238,846
------------
Real Estate 0.3%
Sao Carlos Empreendimentos (pfd.) ...................... 499,904,418 1,062,505
------------
Retail 2.8%
Companhia Brasileira de Distribuicao Grupo Pao de Acucar
(voting) (pfd.)* ..................................... 325,136,400 10,555,205
------------
Telecommunications 20.8%
Embratel Participacoes S.A.(pfd.) ...................... 668,223,400 15,982,480
Tele Celular Sul Participacoes S.A. (pfd.) ............. 463,000,000 2,235,350
Tele Centro Oeste Celular Participacoes S.A. (pfd.) .... 905,000,000 3,656,160
Tele Centro Sul Participacoes S.A. (pfd.) .............. 1,594,456,600 23,093,961
Tele Nordeste Celular Participacoes S.A. (pfd.) ........ 860,400,000 3,199,046
Tele Norte Leste Participacoes S.A. (pfd.) ............. 848,807,592 19,901,299
Tele Norte Leste Participacoes (Preference Rights)* (b) 960,644 2,772
Telecomunicacoes de Minas Gerais S.A. "C" (pfd.) ....... 55,100,000 1,406,548
Telecomunicacoes do Parana S.A. (pfd.) ................. 18,872,900 6,598,288
Telesp Celular Participacoes S.A. (pfd) ................ 165,500,000 2,994,062
------------
79,069,966
------------
Textiles 0.8%
Sao Paulo Alpargatas S.A. (pfd.) ....................... 47,579,600 3,168,453
------------
Tobacco 2.7%
Souza Cruz S.A. (voting) ............................... 1,700,143 10,180,102
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
[LOGO] The Brazil Fund, Inc.
Investment Portfolio
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Shares Value ($)
--------------------------------------------------------------------------------
Utilities 8.5%
Centrais Eletricas Brasileiras S.A. "B" (pfd.) . 455,000,000 10,074,639
Companhia Energetica de Minas Gerais (pfd.) .... 363,019,229 6,345,786
Companhia Paranaense de Energia Copel "B"
(pfd.) ...................................... 1,140,700,000 10,761,321
Companhia Paranaense de Energia Copel (voting) . 841,742,700 5,320,449
32,502,195
-----------
Total Common Stocks (Cost $176,536,023) ........ 372,459,412
-----------
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $184,297,189) (a) ..................... 380,220,578
===========
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* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost of the investment portfolio for federal income tax purposes was
$184,325,797. At June 30, 2000, net unrealized appreciation for all
securities based on tax cost was $195,894,781. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of value over tax cost of $207,281,186 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value of $11,386,405.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $698,488 (0.18% of net assets). Their
values have been estimated by the Board of Directors in the absence of
readily ascertainable market values as of June 30, 2000. 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, 2000 aggregated $1,284,245. These
securities may also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
[LOGO] The Brazil Fund, Inc.
Financial Statements
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<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 2000
------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $184,297,189) ................... $380,220,578
Cash ...................................................................... 4,777
Foreign currency, at value (cost $14,366,683) ............................. 14,591,153
Dividends receivable ...................................................... 1,961,345
Other assets .............................................................. 2,084
------------
Total assets .............................................................. 396,779,937
------------
LIABILITIES
Payable for investments purchased ......................................... 1,578,412
Accrued management fee .................................................... 335,913
Other accrued expenses and payables ....................................... 257,366
------------
Total liabilities ......................................................... 2,171,691
------------
Net assets, at value ...................................................... $394,608,246
============
NET ASSETS
Net assets consist of:
Undistributed net investment income 3,286,361 Net unrealized appreciation
(depreciation) on:
Investments ............................................................ 195,923,389
Foreign currency related transactions .................................. 226,758
Accumulated net realized gain (loss) ...................................... 6,563,222
Paid-in capital ........................................................... 188,608,516
------------
Net assets, at value ...................................................... $394,608,246
Net asset value per share ($394,608,246 B 16,436,988 shares of common stock ============
outstanding, 50,000,000 shares authorized, $.01 par value) $ 24.01
============
The accompanying notes are an integral part of the financial statements.
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</TABLE>
10
<PAGE>
[LOGO] The Brazil Fund, Inc.
Financial Statements
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<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Statement of Operations
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Investment Income
-----------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $1,336,352) ............. $ 11,958,312
Interest ............................................................ 356,204
Insurance proceeds .................................................. 410,400
-------------
Total Income ........................................................ 12,724,916
-------------
Expenses:
Management fee ...................................................... 3,639,215
Administrator's fee ................................................. 50,000
Services to shareholders ............................................ 32,895
Custodian and accounting fees ....................................... 775,887
Auditing ............................................................ 98,337
Legal ............................................................... 21,712
Directors' fees and expenses ........................................ 76,118
Reports to shareholders ............................................. 89,080
Other ............................................................... 59,544
4,842,788
-------------
Net investment income (loss) ........................................ 7,882,128
-------------
Realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ......................................................... 12,238,450
Foreign currency related transactions (including CPMF tax of $48,613) (495,986)
-------------
11,742,464
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 99,445,640
Foreign currency related transactions ............................... 481,251
-------------
99,926,891
-------------
Net gain (loss) on investment transactions .......................... 111,669,355
-------------
Net increase (decrease) in net assets resulting from operations ..... $ 119,551,483
=============
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
[LOGO] The Brazil Fund, Inc.
Financial Statements
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<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Year Ended Ended June 30, December 31,
Increase (Decrease) in Net Assets June 30, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ........................... $ 7,882,128 $ 4,226,542 $ 13,429,010
Net realized gain (loss) on investment transactions .... 11,742,464 (4,020,618) 35,040,732
Net unrealized appreciation (depreciation) on investment
transactions during the period ...................... 99,926,891 37,683,709 (186,495,040)
------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations .......................................... 119,551,483 37,889,633 (138,025,298)
------------- ------------- -------------
Distributions to shareholders from:
Net investment income .................................. (4,928,756) (2,463,256) (12,154,425)
------------- ------------- -------------
Net realized gains on investment transactions .......... -- -- (37,035,402)
------------- ------------- -------------
Fund share transactions:
Reinvestment of distributions .......................... 140,973 1,075,205 1,128,338
------------- ------------- -------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 140,973 1,075,205 1,128,338
------------- ------------- -------------
Increase (decrease) in net assets ...................... 114,763,700 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 $3,286,361, $828,975 and
$1,454,663, respectively) ........................... $ 394,608,246 $ 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 ....................................... 7,655 114,178 58,372
------------- ------------- -------------
Shares outstanding at end of period .................... 16,436,988 16,429,333 16,315,155
============= ============= =============
The accompanying notes are an integral part of the financial statements.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
[LOGO] The Brazil Fund, Inc.
Financial Highlights
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The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements and market price data.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, Years Ended December 31,
----------------------- ---------------------------------------------
2000 1999(d) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period ......... $ 17.03 $ 14.92 $ 26.42 $ 25.75 $ 20.73 $ 31.10
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) (a) ............. .48 .26 .82 .60 .55 .38
Net realized and unrealized gain (loss) on ... 6.80 2.00 (9.30) 3.33 5.34 (7.63)
------- ------- ------ ------- ------- -------
investment transactions
Total from investment operations ............. 7.28 2.26 (8.48) 3.93 5.89 (7.25)
------- ------- ------ ------- ------- -------
Less distributions from:
Net investment income ........................ (.30) (.15) (.75) (.51) (.55) (.30)
Net realized gains on investment
transactions .............................. -- -- (2.27) (2.75) (.32) (.90)
In excess of net realized gains on
investment ................................ -- -- -- -- -- (.15)
------- ------- ------- ------- ------- -------
transactions
Total distributions .......................... (.30) (.15) (3.02) (3.26) (.87) (1.35)
------ ------- ------ ------ ------ -------
Dilution resulting from rights offering ...... -- -- -- -- -- (1.77)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............... $ 24.01 $ 17.03 $ 14.92 $ 26.42 $ 25.75 $ 20.73
======= ======= ======= ======= ======= =======
Market value, end of period .................. $ 17.13 $ 14.75 $ 10.88 $ 21.00 $ 22.25 $ 21.13
======= ======= ======= ======= ======= =======
Total Return (%)
Per share market value (%) ................... 17.99 37.22** (31.61) 10.16 9.29 (26.37)
Per share net asset value (%) (b) ............ 43.28 15.48** (25.42) 19.75 28.89(c) (23.31)(c)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ....... 395 280 243 429 418 336
Ratio of expenses before expense
reductions (%) ............................ 1.49 1.67* 1.56 1.46 1.62 1.67
Ratio of expenses after expense
reductions (%) ........................... 1.49 1.67* 1.56 1.46 1.60 1.62
Ratio of net investment income (loss) (%) .... 2.42 3.47* 3.57 1.91 2.22 1.54
Portfolio turnover rate (%) .................. 14 4* 17 6 9 10
(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) 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
------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
[LOGO] The Brazil Fund, Inc.
Notes to Financial Statements
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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 accounting
principles generally accepted in the United States 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.
The Fund was subject to a 0.38% Contribuicao Provisoria sobre Movimentacao
Financiera (CPMF) tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market until June 17,
2000. Effective June 18, 2000 the CPMF tax is 0.30%.
14
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[LOGO] The Brazil Fund, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
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 accounting principles generally accepted in the United
States. 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 year ended June 30, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $43,907,966 and
$47,952,536, 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 year ended June 30, 2000,
the fee pursuant to the Agreement amounted to $3,639,215, which was equivalent
to an annualized effective rate of 1.14%.
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 year ended June 30,
2000, the Administrator fee amounted to $50,000, of which $2,767 is unpaid at
June 30, 2000.
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 year ended
June 30, 2000, the amount charged to the Fund by SFAC aggregated $180,215, of
which $30,235 is unpaid at June 30, 2000.
15
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[LOGO] The Brazil Fund, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the year ended June 30,
2000, the amount charged to the Fund by SSC aggregated $15,000, of which $2,500
is unpaid at June 30, 2000.
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 year ended June 30, 2000, Directors' fees and expenses
amounted to $76,118.
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 with Chase Manhattan Bank, for temporary or emergency
purposes. The Participants are charged an annual commitment fee which is
allocated, pro rata based on net assets 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.
16
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[LOGO] 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 June 30, 2000, 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 June 30, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
August 18, 2000
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[LOGO] The Brazil Fund, Inc.
Tax Information
--------------------------------------------------------------------------------
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$8,271,400 as capital gain dividends for its year ended June 30, 2000, of which
100% represents 20% rate gains.
The Fund paid foreign taxes of $1,336,352 and earned $8,815,131 of foreign
source income during the year ended June 30, 2000. Pursuant to section 853 of
the Internal Revenue Code, the Fund designates $0.09 per share as foreign taxes
paid and $0.54 per share as income earned from foreign sources for the year
ended June 30, 2000.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
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[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 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, subject to the amendment described below under "Amendment of the Plan." 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.
Amendment of the Plan
Effective October 1, 2000, the Plan has been amended to provide that if on
the Valuation Date the fund's shares are trading at a discount to net asset
value, the Plan Agent will use the dividend or distribution (less each
participant's pro rata share of brokerage commissions) to buy fund shares in the
open market for the participants' account. Such purchases will be made on or
shortly after the payment date for such dividend or distribution, and in no
event more than 45 days after such date except where temporary curtailment or
suspension of purchase is necessary to comply with federal securities law.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments
to the Plan Agent,
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[LOGO] The Brazil Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
--------------------------------------------------------------------------------
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.
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
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[LOGO] The Brazil Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
--------------------------------------------------------------------------------
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.
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[LOGO] The Brazil Fund, Inc.
Stockholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
The Annual Meeting of Stockholders (the "Meeting") of The Brazil Fund, Inc. (the
"Fund") was held on July 6, 2000, at the office of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, NY 10154. At the Meeting the following matters
were voted upon by the stockholders (the resulting votes for each matter are
presented below).
1. To elect two Directors of the Fund to hold office for a term of three years
or until their respective successors shall have been duly elected and
qualified.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Director For Withheld Broker Non-Votes*
-------- --- -------- ----------------
<S> <C> <C> <C>
Kenneth C. Froewiss 10,432,039 112,315 0
Robert J. Callander 10,429,911 114,443 0
</TABLE>
2. To ratify or reject action taken by the Board of Directors in selecting
PricewaterhouseCoopers LLP as the Fund's independent accountants for the
fiscal year ending June 30, 2001.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- ----------------
<S> <C> <C> <C>
10,492,747 28,264 23,342 0
</TABLE>
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
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[LOGO] 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
ROBERT J. CALLANDER
Director
ROBERTO TEIXEIRA DA COSTA
Director and Resident Brazilian Director
EDGAR R. FIEDLER
Director
KENNETH C. FROEWISS
Director
WILLIAM H. LUERS
Director
RONALDO A. DA FROTA NOGUEIRA
Director and Resident Brazilian Director
HAROLD M. WILLIAMS
Director
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
JUDITH A. HANNAWAY*
Vice President
TARA C. KENNEY*
Vice President
ANN M. McCREARY*
Vice President
PAUL H. ROGERS*
Vice President
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN MILLETTE*
Vice President and Secretary
JOHN R. HEBBLE*
Treasurer
BRENDA LYONS*
Assistant Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
23
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