The ADSs generally do not give you voting rights.

The ADSs represent preferred shares of Embratel Participações. Under Brazilian law and our by-laws, holders of preferred shares generally do not have the right to vote at our shareholder meetings. This means, among other things, that you are not entitled to vote on important corporate transactions including mergers or consolidations of Embratel Participações with other companies.


The preferred shares and ADSs do not entitle you to a fixed or minimum dividend.

Under Brazilian Corporation Law and our by-laws, unless our board of directors decides otherwise, we must pay our stockholders a mandatory distribution equal to 50% of our net income as adjusted for this purpose. Therefore, whether or not you receive a dividend depends on the amount of the mandatory distribution, if any, and whether the board of directors exercises its discretion to suspend these payments. See "Item 8. Financial Information - Consolidated Statements and Other Financial Information - Distribution Policy and Dividends" for a more detailed discussion of mandatory distributions.


You might be unable to exercise preemptive rights with respect to the preferred shares.

In the event of a capital increase which would maintain or increase the proportion of capital represented by preferred shares, preferred shareholders would have preemptive rights to subscribe to newly issued preferred shares. In the event of a capital increase which would maintain or reduce the proportion of capital represented by preferred shares, preferred shareholders would have preemptive rights to subscribe for preferred shares in proportion of their shareholdings and for common shares only to the extent necessary to prevent dilution of their interest in the company.

ADS holders may not be able to exercise preemptive rights relating to the preferred shares underlying the ADSs unless a registration statement under the United States Securities Act of 1933, or the Securities Act, as amended, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and therefore, we cannot assure you that any such registration statement will be filed. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse.


If you exchange the ADSs for preferred shares, you risk losing certain foreign currency remittance and Brazilian tax advantages.

The ADSs benefit from the Depositary's certificate of foreign capital registration, which permits the Depositary to convert dividends and other distributions with respect to the preferred shares into foreign currency and remit the proceeds abroad. If you exchange your ADSs for preferred shares, you will be entitled to rely on the Depositary's certificate of foreign capital registration for five business days from the date of exchange. Thereafter, you will not be able to remit abroad non-Brazilian currency unless you obtain your own certificate of foreign capital registration or you qualify under Resolution 2,689 of the Central Bank dated January 26, 2000, known as Resolution 2,689, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. If you do not qualify under Resolution 2,689, you will generally be subject to less favorable tax treatment on distributions with respect to the preferred shares. We cannot assure you that the Depositary's certificate of registration or any certificate of foreign capital registration obtained by you may not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to your investment in the ADSs may not be imposed in the future. For a more complete description of Brazilian tax regulations, see "Item 10. Additional Information - E. Taxation - Brazil".

The relative volatility and illiquidity of the Brazilian securities markets may adversely affect you.

Investing in securities, such as the preferred shares or ADSs, of issuers from emerging market countries, including Brazil, involves a higher degree of risk than investing in securities of issuers from more developed countries.

For the reason above, investments involving risks relating to Brazil, such as investments in ADSs, are generally considered speculative in nature and are subject to certain economic and political risks, such as among others:

The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States. This may substantially limit your ability to sell the preferred shares underlying your ADSs at a price and time at which you wish to do so. The São Paulo Stock Exchange - BOVESPA, the only Brazilian stock exchange, had a market capitalization of approximately U.S.$226 billion as of December 31, 2000 and an average monthly trading volume of approximately U.S.$8.4 billion for 2000. In comparison, the NYSE had a market capitalization of U.S.$11.7 trillion as of August 31, 2000 and an average monthly trading volume of approximately U.S.$810 billion for 2000.

There is also significantly greater concentration in the Brazilian securities market. The ten largest companies in terms of market capitalization represented approximately 44% of the aggregate market capitalization of the São Paulo Stock Exchange as of December 31, 2000. The top ten stocks in terms of trading volume accounted for approximately 55.4% of all shares traded on the São Paulo Stock Exchange in 2000.


If we were treated as a passive foreign investment company, a U.S. holder of ADSs would be subject to disadvantageous rules under the U.S. tax laws.

Please see "Item 10. Additional Information - Taxation - United States" for a description of the passive foreign investment company, or PFIC, rules. If we are characterized as a PFIC in any year, U.S. holders of ADSs could be subject to unfavorable U.S. federal income tax treatment. Although we do not believe that we were a PFIC in 2000, there can be no assurance that our business and activities will not lead to PFIC status for us in the future. PFIC classification is a factual determination made annually and thus may be subject to change. PFIC status could arise, for example, if we make an acquisition of another company through a structure that gives us voting control over that company but that does not give us a large economic interest in that company. We may choose to make such an acquisition for business reasons notwithstanding that it could cause us to be characterized as a PFIC for U.S. federal income tax purposes.