================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ----------------------

                                    FORM 20-F

     (Mark One)
        [ ]         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                    OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

                       OR

        [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR
                    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended: December 31, 2003

<TABLE>
<S>          <C>                         <C>                        <C>                     <C>                       <C>
          333-8128                  333-8128-01                333-8128-02              333-8128-03               333-8128-04
                                                                                    PRIME PRESTADORA DE         LOCALIZA MASTER
  LOCALIZA RENT A CAR S.A.   LOCALIZA FRANCHISING S.A.      TOTAL FLEET S.A.           SERVICOS S.A.       FRANCHISEE ARGENTINA S.A.
 --------------------------   -----------------------    -----------------------  -----------------------   -----------------------
 (Exact name of Registrant   (Exact name of Registrant       (Exact name of      (Exact name of Registrant      (Exact name of
as specified in its charter)    as specified in its      Registrant as specified    as specified in its     Registrant as specified
                                      charter)               in its charter)               charter)             in its charter)

                                                                                                                Localiza Master
    Localiza Rent a Car         Localiza Franchising                               Prime Service Provider    Franchisee Argentina
        Corporation                 Corporation          Total Fleet Corporation        Corporation               Corporation
 --------------------------   -----------------------    -----------------------  -----------------------   -----------------------
      (Translation of             (Translation of            (Translation of          (Translation of           (Translation of
   Registrant's name into      Registrant's name into    Registrant's name into    Registrant's name into   Registrant's name into
          English)                    English)                  English)                   English)                English)

 The Federative Republic of   The Federative Republic    The Federative Republic  The Federative Republic
           Brazil                    of Brazil                  of Brazil                of Brazil           Republic of Argentina
 --------------------------   -----------------------    -----------------------  -----------------------   -----------------------
      (Jurisdiction of            (Jurisdiction of          (Jurisdiction of          (Jurisdiction of         (Jurisdiction of
      incorporation or            incorporation or          incorporation or          incorporation or         incorporation or
       organization)                organization)             organization)             organization)             organization)

</TABLE>

                           Av. Bernardo Monteiro 1563
                             Funcionarios 30150-902
                      Belo Horizonte, Minas Gerais, Brazil
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      Title
                                      -----
                     10 1/4% Series B Senior Notes due 2005
              Guarantees of 10 1/4% Series B Senior Notes due 2005

The number of outstanding shares/quotas of each of the issuers' classes of stock
as of December 31, 2003 was:

<TABLE>
<S>          <C>                         <C>                        <C>            <C>                         <C>
                                                                                                               LOCALIZA MASTER
                                                                                   PRIME PRESTADORA DE           FRANCHISEE
  LOCALIZA RENT A CAR S.A.    LOCALIZA FRANCHISING S.A.      TOTAL FLEET S.A.          SERVICOS S.A.            ARGENTINA S.A.
---------------------------  --------------------------  ----------------------  -------------------------  ------------------------
On December 31, 2003, there    On December 31, 2003,     On December 31, 2003,       On December 31, 2003,    On December 31, 2003,
  were 15,360,000 common     there were 116,254 common   there were 109,630,000   there were 15,000 common  there were 25,000 common
shares outstanding, no par     shares outstanding, no        common shares         shares outstanding, no    shares outstanding, par
      value per share            par value per share      outstanding, no par       par value per share     value ARP1.00 per share
                                                           value per share
</TABLE>

     Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days.
                                 Yes [X] No [ ]

     Indicate by check mark which financial statement item the registrants have
elected to follow.
                            Item 17 [ ] Item 18 [X]

================================================================================


<PAGE>


                                Table of Contents
                                -----------------

                                                                            Page


Presentation of Information....................................................1

FORWARD-LOOKING STATEMENTS.....................................................1

                                     PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...............3

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE.............................3

ITEM 3.    KEY INFORMATION.....................................................3
           A.   Selected Consolidated Financial Data...........................3
           B.   Capitalization and Indebtedness................................8
           C.   Reasons for the Offer and Use of Proceeds......................8
           D.   Risk Factors...................................................8

ITEM 4.    INFORMATION ON THE COMPANY.........................................17
           A.   History and Development of the Company........................17
           B.   Business Overview.............................................18
           C.   Organizational Structure......................................27
           D.   Description of Property.......................................28

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................29
           A.   Operating Results.............................................29
           B.   Liquidity and Capital Resources...............................40
           C.   Research and Development, Patents and Licenses................42
           D.   Trend Information.............................................42
           E.   Off-Balance Sheet Arrangements................................42
           F.   Tabular Disclosure of Contractual Obligations.................42

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................43
           A.   Directors and Senior Management...............................43
           B.   Compensation..................................................47
           C.   Board Practices...............................................48
           D.   Employees.....................................................49
           E.   Share Ownership...............................................50

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................50
           A.   Major Shareholders............................................50
           B.   Related Party Transactions....................................51
           C.   Interests of Experts and Counsel..............................51

ITEM 8.    FINANCIAL INFORMATION..............................................51
           A.   Consolidated Statements and Other Financial Information.......51
           B.   Significant Changes...........................................52

ITEM 9.    THE OFFER AND LISTING..............................................52
           A.   Offer and Listing Details.....................................52
           B.   Plan of Distribution..........................................52
           C.   Markets.......................................................52
           D.   Selling Shareholders..........................................52
           E.   Dilution......................................................52
           F.   Expenses of the Issue.........................................52

ITEM 10.   ADDITIONAL INFORMATION.............................................52
           A.   Share Capital.................................................52
           B.   Memorandum and Articles of Association........................52
           C.   Material Contracts............................................59
           D.   Exchange Controls.............................................59
           E.   Taxation......................................................60
           F.   Dividends and Paying Agents...................................60
           G.   Statement by Experts..........................................60
           H.   Documents on Display..........................................60
           I.   Subsidiary Information........................................60

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........60

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............62

                                     PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................62

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
           PROCEEDS...........................................................62

ITEM 15.   CONTROLS AND PROCEDURES............................................62

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT....................................63

ITEM 16B. CODE OF ETHICS......................................................63

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................63

                                    PART III

ITEM 17.   FINANCIAL STATEMENTS...............................................64

ITEM 18.   FINANCIAL STATEMENTS...............................................64

ITEM 19.   EXHIBITS...........................................................64

Signatures....................................................................66


<PAGE>

                           Presentation of Information

General

     Credit Suisse First Boston Corporation, or CSFB, is an affiliate of the
Donaldson, Lufkin & Jenrette Merchant Banking Funds, or DLJMB Funds, which
beneficially owns approximately 33.33% of Localiza's outstanding common stock.
CSFB is also an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, or DLJ, which acted as initial purchaser in connection with the
original private offering of Localiza's 101/4% Series A Senior Notes in the
aggregate principal amount of US$100 million, referred to in this annual report
as the "Notes", and as a market maker for the Notes. CSFB, New York branch, now
acts as market maker for the Notes in lieu of DLJ. All references to "Notes"
refer to the US$100 million aggregate principal amount of 101/4% Series A Senior
Notes due 2005 issued in October 1997 that we exchanged, on April 10, 1998, for
US$100 million aggregate principal amount of 101/4% Series B Senior Notes due
2005.

     In this annual report "we", "us" and "our" refer to Localiza Rent a Car
S.A., known as Localiza, a company incorporated and existing under the laws of
Brazil, and its consolidated subsidiaries. Localiza's consolidated subsidiaries
are: Total Fleet S.A., known as Total Fleet, a company incorporated and existing
under the laws of Brazil; Localiza Franchising S.A., known as Franchising, a
company incorporated and existing under the laws of Brazil; Prime Prestadora de
Servicos S.A., known as Prime, a company incorporated and existing under the
laws of Brazil; and Localiza Master Franchisee Argentina S.A., known as MFA, a
company incorporated and existing under the laws of Argentina.

     All references to the "real", "reais", or "R$" are to the Brazilian reais,
the official currency of Brazil. All references to "U.S. dollars", "dollars" or
"US$" are to United States dollars. All references to "peso", "pesos" and "ARP"
are to Argentine pesos, the official currency of Argentina.

     Localiza Franchising S.A. was originally organized as a limited liability
company. At a quotaholders' meeting held on May 1, 2003, the quotaholders of
Franchising approved its transformation from a limited liability company into a
corporation (sociedade anonima). At the same date, the quotaholders of Prime
approved its transformation from a limited liability company into a corporation
(sociedade anonima).

     On March 31,2004, Franchising was spun-off and generated a new company
named Localiza Franchising Brasil SA, currently responsible for the Brazilian
franchising operations. Franchising just maintained in its books the investment
in MFA.

Financial Statements

     The audited financial statements of Localiza, Franchising and MFA as of
December 31, 2002 and 2003 and for the three years in the period ended December
31, 2003, and the notes thereto, contained herein have been prepared in
accordance with generally accepted accounting principles in the United States,
or U.S. GAAP.

     Localiza and Franchising also prepare financial statements in accordance
with Law No. 6,404 dated December 15, 1976, as amended, known as the Brazilian
Corporation Law. These financial statements are presented in constant currency.
Brazilian income taxes and dividends are determined on the basis of results of
operations as presented in the Brazilian Corporation Law financial statements.
In addition, MFA also prepares financial statements in accordance with Argentine
GAAP. See Item 8 Financial Information.


                           FORWARD-LOOKING STATEMENTS

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
annual report contains information that is forward-looking, including but not
limited to:

     o    our goals and future operations;

<PAGE>

     o    the implementation of our principal operating strategies;

     o    the implementation of our financing strategy;

     o    trends affecting our financial condition or results of operations;

     o    the used car resale market; and

     o    supply and demand for our products and services.

     Forward-looking statements may also be identified by words such as
"believe", "expect", "anticipates", "project", "intend", "should", "seek",
"estimate", "future" or similar expressions. Such forward-looking information
involves risks and uncertainties that could significantly affect expected
results. The risks and uncertainties include, but are not limited to:

     o    uncertainties relating to political and economic conditions in Brazil;

     o    inflation and exchange rate risks; and

     o    increased competition.

     Neither our independent auditors, nor any other independent accountants
have compiled, examined or performed any procedures with respect to the
forward-looking statements contained herein, nor have they expressed any opinion
or any form of assurance on such information or its achievability, and they
assume no responsibility for, and disclaim any association with, the
forward-looking statements.



                                        2
<PAGE>


                                     PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3.  KEY INFORMATION

     The audit reports for the consolidated audited financial statements of each
of Localiza and Franchising as of December 31, 2002 and 2003 and for the three
years in the period ended December 31, 2003 included in this annual report were
issued by Deloitte Touche Tohmatsu Auditores Independentes, located at Rua
Paraiba, 1122, 20th Floor, 30130-141, Belo Horizonte, Minas Gerais, Brazil.

     The audit report for the audited financial statements of MFA as of December
31, 2002 and 2003 and for the two years in the period ended December 31, 2003
included in this annual report was issued by Deloitte & Co. S.R.L., located at
Calle Florida, 234, 5th Floor, C1005AAF, Buenos Aires, Argentina. The audit
report for the audited financial statements of MFA for the year ended December
31, 2001, included in this annual report, was issued by Pistrelli, Dyas y
Associados in Argentina, a former member firm of Andersen S/C, located at Av. 25
de Mayo 487, 1002, Buenos Aires, Argentina, which has ceased operations.

A.   Selected Consolidated Financial Data

     The following tables present selected historical financial data for
Localiza, Franchising and MFA, and should be read in conjunction with the
audited financial statements included in this annual report. All financial
information relating to Localiza and Franchising is presented in nominal reais.
All financial information relating to MFA is presented in Argentine pesos.

     Under the terms of the Notes, Localiza's subsidiaries have fully and
unconditionally guaranteed on a joint and several basis Localiza's obligations
to pay principal and interest relative to the Notes. The subsidiaries Total
Fleet S.A. and Prime Prestadora de Servicos S.A. are wholly-owned subsidiaries
of Localiza and management has determined that separate financial statements of
the wholly-owned subsidiary guarantors would not be useful to potential
investors and, accordingly, such financial statements are not provided. See note
28 to the Localiza audited financial statements.

     Franchising acquired MFA on August 17, 1999, and the audited financial
statements of Localiza and Franchising reflect the financial condition and
results of operations of MFA from the date of its acquisition.

     For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income from continuing operations before provision for income tax
and minority interest plus fixed charges. Fixed charges consist of interest
expenses, amortization of prepaid expenses for the Senior Notes and the interest
portion of rental expenses. Fixed charges do not take into account any gains on
monetary position associated with indebtedness or any exchange gains or losses
attributable to indebtedness.

     For purposes of computing dividends per common share, we use shares
outstanding on the date of payment of the dividends. When dollar figures are
given, we calculated the amount of the dividend payment in U.S. dollars using
the exchange rate from the date of the dividend payment.


                                        3
<PAGE>

     The table below presents selected historical financial data for Localiza.

<TABLE>

                                                                   Year Ended December 31,
                                           -------------------------------------------------------------------------
                                               1999          2000           2001          2002           2003
                                               ----          ----           ----          ----           ----
                                                                          U.S. GAAP
                Localiza                   -------------------------------------------------------------------------
             (consolidated)                                          (in thousands of reais)
<S>                                             <C>             <C>            <C>           <C>            <C>
Income Statement Data
Net revenues..........................       R$  244,677    R$ 310,074     R$ 420,445   R$  476,964    R$  532,034
Operating income......................            51,922        81,662        106,370       115,288        111,168
Net income before cumulative effect
   of a change in accounting principle            18,537        44,655         43,888        26,649        105,640
Extraordinary Gain (*)................             1,394             -              -             -              -
Cumulative effect of a change in
   accounting principles (**).........                 -             -           (907)            -              -
Net income............................            19,931        44,655         42,981        26,649        105,640
Balance Sheet Data
Current assets........................           187,439       279,701        346,582       404,454        496,455
Noncurrent assets.....................           112,761       112,042        132,071       142,291        142,663
Property and Equipment, net...........             7,318         7,922         12,534        15,126         18,581
Goodwill..............................               436         4,874          4,704         4,704          4,704
   Total assets.......................           307,954       404,539        495,891       566,575        662,403
Short-term debt.......................             6,315        36,375         31,540         6,616         13,719
Other current liabilities.............            17,821        32,851         41,249        44,690        111,083
   Total of current liabilities.......            24,136        69,226         72,789        51,306        124,802
Long-term debt........................           132,207       144,504        171,478       261,111        213,512
Other non-current liabilities.........            22,318        26,660         60,446        59,444         80,856
   Total of non-current liabilities...           154,525       171,164        231,924       320,555        294,368
   Total liabilities..................           178,661       240,390        304,713       371,861        419,170
Minority interest.....................               125            95             85            92             17
Capital stock.........................           106,303       117,523        122,923       135,723        153,693
Accumulated earnings..................            22,212        46,156         67,784        59,374         89,523
Other comprehensive income (expense)..               653           375            386          (475)            --
   Shareholders' equity...............           129,168       164,054        191,093       194,622        243,216
Other Selected Data
Cash dividends (in reais).............             5,167         7,526         15,000        20,000         54,350
Cash dividends (in U.S. dollars)......             3,023         4,318          6,853         8,236         17,804
Interest on capital (in reais)(1).....             5,256        13,100          6,353        15,059         21,141
Interest on capital (in U.S. dollars).             2,938         6,691          2,756         4,262          7,317
Ratio of earnings to fixed charges....               2.0          3.32           2.80          1.99           5.49

---------------------------------------
(*)  Gain in the partial repurchase of own senior notes.
(**) Adoption of SFAS 133.
(1)  See note 20(c) to the Localiza financial statements

</TABLE>


                                        4
<PAGE>

     The table below presents selected historical financial data for
Franchising.

<TABLE>
                                                                     Year Ended December 31,
                                           -------------------------------------------------------------------------
                                                 1999         2000          2001           2002            2003
                                                 ----         ----          ----           ----            ----
                                                                         U.S. GAAP
                                           -------------------------------------------------------------------------
                Franchising                                         (in thousands of reais)
              (consolidated)
<S>                                             <C>             <C>            <C>           <C>            <C>
Income Statement Data
Net revenues............................       R$    5,001    R$   6,444   R$    5,056     R$   5,111    R$   5,456
Operating income .......................             1,921         1,490           463          1,986         2,285
Net income .............................             1,442           932             1          1,516         1,407
Balance Sheet Data
Current assets..........................             2,232         2,369         2,799          3,473         2,370
Noncurrent assets.......................               499           564           585            597           569
Office Equipment, net...................               255           228           140             93            98
Goodwill................................               623           489            --             --            --
   Total assets.........................             3,609         3,650         3,524          4,163         3,037
Current liabilities.....................             1,303         1,359         1,125          2,200         1,949
Noncurrent liabilities..................               777         1,020         1,263            746           864
   Total liabilities....................             2,080         2,379         2,388          2,946         2,813
Capital stock...........................             1,200         1,200         1,200          1,200           200
Accumulated earnings (deficit) .........               329            71           (64)            17            24
   Shareholders' equity.................             1,529         1,271         1,136          1,217           224
Other Selected Data
Cash dividends (in reais)...............             1,233         1,135            30          1,435         1,400
Cash dividends (in U.S. dollars)........               677           628            12            454           482
Interest on capital (in reais)..........                62            55           106             --            --
Interest on capital (in U.S. dollars)...                34            31            46             --            --
Ratio of earnings to fixed charges......             56.66         24.02         11.91          45.92         15.27
</TABLE>


                                        5
<PAGE>


     The table below presents selected historical financial data for MFA.

<TABLE>
                                                                            Year Ended
                                                  -------------------------------------------------------------
                                                  November     December     December     December      December
                                                  30, 1999     31, 2000     31, 2001     31, 2002      31, 2003
                                                  --------     --------     --------     --------      --------
                                                                            U.S. GAAP
                                                  -------------------------------------------------------------
                      MFA                                                 (in thousands of pesos)
<S>                                                    <C>          <C>          <C>          <C>          <C>
Income Statement Data
Net revenues...............................      ARP   872    ARP   842    ARP   740    ARP   866    ARP   982
Operating income (loss)....................           (224)         (37)        (124)          42           35
Net income (loss)..........................           (248)         (45)        (134)          51           97
Balance Sheet Data
Current assets.............................            274          224          186          319          520
Noncurrent assets..........................             38           30           48           75          185
Deferred income tax........................             --           --           --           --           62
Office Equipment, net......................             45           36           27           13            7
     Total assets..........................            357          290          261          407          774
Current liabilities........................            252          260          207          295          554
Noncurrent liabilities.....................            114            5           22           29           40
     Total liabilities.....................            366          265          229          324          594
Capital stock..............................            286          332          473           25           25
Accumulated earnings (deficit).............           (295)        (307)        (441)          58          155
     Shareholders' equity..................             (9)          25           32           83          180
Other Selected Data
Cash dividends (in pesos)..................             --           --           --           --           --
Cash dividends (in U.S. dollars)...........             --           --           --           --           --
Interest on capital (in pesos).............             --           --           --           --           --
Interest on capital (in U.S. dollars)......             --           --           --           --           --
Ratio of earnings to fixed charges(1)......             --           --           --        13.75        18.50

---------------------------------------
(1)  Under U.S. GAAP, MFA's earnings were insufficient to cover fixed charges in
     the amount of ARP243 thousand for the year ended November 30, 1999, ARP45
     thousand for the year ended December 31, 2000 and ARP134 thousand for the
     year ended December 31, 2001.

</TABLE>

  Exchange Rates

     Brazil

     There are two principal foreign exchange markets in Brazil:

     o    the commercial rate exchange market, and

     o    the floating rate exchange market.

     The commercial rate exchange market may be used primarily for foreign trade
and financial transactions that generally require prior approval from or
registration with the Central Bank of Brazil. These transactions include the
purchase or sale of shares or the payment of dividends or interest with respect
to shares. Foreign currencies may only be purchased through a Brazilian bank
authorized to operate in these markets. In both markets, rates are freely
negotiated, but may be strongly influenced by Central Bank of Brazil
intervention. In January 1999, the Brazilian government announced the
unification of the exchange positions of the Brazilian banks in the floating
rate exchange market and commercial rate exchange market, which led to a
convergence in the pricing and liquidity of both markets. Since February 1, 1999
the floating market rate and the commercial market rate have not differed
significantly. However, there is no guarantee that the rates will continue to be
the same in the future.

                                       6
<PAGE>

     The Central Bank of Brazil has in the past managed U.S. dollar exchange
rates within defined bands. In January 1999, the Central Bank of Brazil
suspended the band and the real was permitted to float at market rates. While
there is currently no set band within which the exchange rate must fluctuate,
there is no guarantee that such a band will not be implemented in the future.

     The following table sets forth the period-end, average, low and high
commercial selling exchange rates, expressed in reais per U.S. dollars for the
periods indicated.

                                 Exchange rates of nominal reais per US$ 1.00
                                 ---------------------------------------------
                                   High         Low       Average   Period-End
                                  ------       -----      -------   ----------
           Year Ended:
 December 31, 1999...........      2.165       1.208      1.851(1)    1.789
 December 31, 2000...........      1.985       1.723      1.835(1)    1.955
 December 31, 2001...........      2.801       1.936      2.353(1)    2.320
 December 31, 2002...........      3.955       2.271      2.998(1)    3.533
 December 31, 2003...........      3.662       2.822      3.060(1)    2.889

           Month Ended:
 December 31, 2003...........      2.943       2.888      2.916(2)    2.889
 January 31, 2004............      2.941       2.802      2.872(2)    2.941
 February 28, 2004...........      2.988       2.904      2.946(2)    2.914
 March 31, 2004..............      2.941       2.875      2.908(2)    2.909
 April 30, 2004..............      2.952       2.874      2.913(2)    2.945
 May 31, 2004................      3.205       2.957      3.081(2)    3.129

------------------------------
Source: Central Bank of Brazil
(1)  Average of the foreign exchange rates on the last day of each month in the
     period.
(2)  Average of the high and low foreign exchange rates for each month.

     On June 21, 2004, the commercial selling exchange rate was R$3.130 per
US$1.00.

     Argentina

     Prior to December 1989, the Argentine foreign exchange market was subject
to exchange controls. From December 1989 to April 1991, Argentina had a freely
floating exchange rate for all foreign currency transactions. From April 1,
1991, when Law No. 23,928 and Decree No. 529/9, known as the Convertibility Law,
became effective, until January 2002, the peso was freely convertible into U.S.
dollars at the rate of ARP1.00 per US$1.00.

     On January 6, 2002, the Argentine congress approved Law No. 25,563, as
modified by Law No. 25,589, known as the Emergency Law, which introduced
dramatic changes to the country's economic model and amended the currency board
that had pegged, by law, the Argentine peso at parity with the U.S. dollar since
April, 1991. On February 8, 2002, the exchange rate markets were unified under a
single, free floating rate, eliminating the "official" exchange rate of ARP1.40
per US$1.00.

     The following tables show, for the periods indicated, certain information
regarding the exchange rates for U.S. dollars, expressed in nominal pesos per
dollar. See Item 10. Additional Information - Exchange Controls.

                                       7
<PAGE>



                             Exchange rates of nominal pesos per US$ 1.00
                             ---------------------------------------------
                              High         Low       Average    Period-End
                              ----         ---       -------    ----------
            Year Ended:
December 31, 1999..........   1.000       1.000     1.000(1)       1.000
December 31, 2000..........   1.000       1.000     1.000(1)       1.000
December 31, 2001..........   1.000       1.000     1.000(1)       1.000
December 31, 2002..........   3.918       1.403     3.232(1)       3.377
December 31, 2003..........   3.377       2.766     2.959(1)       2.946

            Month Ended:
December 31, 2003..........   2.966       2.936     2.951(2)       2.946
January 31, 2004...........   2.946       2.876     2.911(2)       2.916
February 28, 2004..........   2.956       2.916     2.936(2)       2.931
March 31, 2004.............   2.941       2.871     2.906(2)       2.871
April 30, 2004.............   2.876       2.816     2.846(2)       2.843
May 31, 2004...............   2.966       2.856     2.911(2)       2.966

------------------------
Sources: Central Bank of Argentina; National Bank of Argentina
(1)  Average of the foreign exchange rates on the last day of each month in the
     period.
(2)  Average of the high and low foreign exchange rates for each month.

     On June 21, 2004, the free floating selling rate was ARP2.976 per US$1.00.

B.   Capitalization and Indebtedness

     Not applicable.

C.   Reasons for the Offer and Use of Proceeds

     Not applicable.

D.   Risk Factors

  Risks Relating to Brazil

     The Brazilian government has exercised, and continues to exercise,
significant influence over the Brazilian economy. Brazilian political and
economic conditions have a direct impact on our business.

     Brazilian economy has been affected by frequent and significant
intervention by the Brazilian government, which has often changed monetary, tax,
credit, tariff and other policies to influence the course of Brazil's economy.
The Brazilian government's actions to control inflation and implement other
policies have at times involved wage and price controls as well as other
interventionist measures such as nationalization, raising interest rates,
freezing bank accounts, imposing capital controls and inhibiting international
trade in Brazil. Changes in policy involving tariffs, exchange controls,
regulation and taxation could adversely affect our business and financial
results and the market price of the Notes. Inflation, currency devaluation,
social instability and other political, economic or diplomatic developments, as
well as the Brazilian government's response to such developments, could also
adversely affect our business and the market price of the Notes.

     On January 1, 2003, Luiz Inacio Lula da Silva, known as Lula, a member of
the Brazilian Worker's Party, took office as the new President of Brazil. In the
period leading up to and immediately following President Lula's election, there
was substantial uncertainty regarding the policies that his new government would
pursue, including the potential implementation of macroeconomic policies that
differed significantly from those of the prior

                                       8
<PAGE>

administration. This uncertainty resulted in a loss of confidence in the
Brazilian capital markets and a 34% devaluation of the real between April 2002
and February 2003. Between March 2003 and September 2003, the real appreciated
15% against the U.S. dollar. From October 2003 to May 2004, the Real remained
stable at approximately R$2.90 per US$1.00. Although the new government has not
departed in any material way from previous policies, it cannot be predicted
whether the new government will continue its current policies or will pursue
different policies, whether these new policies, if implemented, will be
effective, and how investors and the capital markets will react to them. Any
substantial negative reaction to the policies of the Brazilian government could
adversely affect our business, financial condition, results of operations or
prospects and the market price of the Notes. Any new program adopted could
result in increased fiscal deficits, increased taxation, inflation or low
economic growth, any one of which could adversely affect our business,
operations or prospects. Furthermore, uncertainty over what policies the current
Brazilian government may propose or adopt in the future may have an impact on
our business and may contribute to economic uncertainty in Brazil and to
heightened volatility in the Brazilian and international securities markets.

     Inflation and certain governmental measures to combat inflation may
contribute significantly to economic uncertainty in Brazil and could harm us.

     Brazil has historically experienced extremely high rates of inflation.
Since the introduction of the real in July 1994 under the Real Plan, Brazil's
inflation rate has been substantially lower than in previous periods. The
inflation rate, as measured by the Indice Geral de Precos -- Mercado, the
general market price index in Brazil, or IGP-M, which was 1.8% in 1998, recorded
an increase to 20.1% in 1999 as a result of the devaluation of the real
beginning in January 1999, decreasing to 10.0% in 2000, 10.4% in 2001 and 25.3%
in 2002, reflecting a depreciation of the real against the U.S. dollar of 52.3%,
largely the result of uncertainties and risks inherent in the Brazilian
presidential succession campaign. In 2003, the inflation rate as measured by the
IGP-M decreased to 8.7%. From January 1, 2004 until May, 2004 inflation rate as
measured by the IGP-M was 5.3%. There can be no assurance that recent lower
levels of inflation will continue. A substantial increase in inflation may
weaken investor confidence in Brazil, impacting our ability to access the
international capital markets.

     In the event Brazil suffers high levels of inflation in the future, our
results of operations may be affected, which could adversely affect our ability
to satisfy payment obligations under Notes. Inflationary pressures may also
curtail our ability to access foreign financial markets and may lead to further
government intervention in the economy, including the introduction of government
policies that may adversely affect the overall performance of the Brazilian
economy, which in turn could adversely affect our results of operations and the
market value of the Notes.

     Fluctuations in the value of the Brazilian currency against the value of
the U.S. dollar and fluctuations in Brazilian interest rates could harm our
ability to make payments under the Notes.

     The relationship of Brazil's currency to the value of the U.S. dollar, the
relative rates of devaluation of Brazil's currency and the prevailing rates of
inflation have affected and may in the future affect general market conditions
thus affecting our financial results which could harm our ability to make
payments under the Notes.

     The Brazilian currency has historically suffered frequent devaluations. In
the past, the Brazilian government has implemented various economic plans and
utilized a number of exchange rate policies, including sudden devaluations,
periodic mini-devaluations during which the frequency of adjustments has ranged
from daily to monthly, floating exchange rate systems, exchange controls and
dual exchange rate markets. Although over long periods devaluations of the
Brazilian currency generally have correlated with the rate of inflation in
Brazil, devaluations over shorter periods have resulted in significant
fluctuations in the exchange rate between the Brazilian currency and the U.S.
dollar and other currencies.

     After the introduction of the Real Plan on July 1, 1994, the real initially
appreciated against the U.S. dollar. In an effort to address concerns about the
overvaluation of the real relative to the U.S. dollar, in March 1995 the
Brazilian government established a trading band for the real against the U.S.
dollar with a view to a gradual devaluation of the currency. As a result of
economic instability in Brazil in late 1998 and early 1999, the trading band was
abandoned, resulting in a significant devaluation of the currency against the
U.S. dollar. Since January 1, 1999, the real/U.S. dollar exchange rate has
fluctuated significantly. On December 31, 2000, the rate was R$1.96

                                       9
<PAGE>

per US$1.00. After the real dropped to a then historical low of R$2.47 per
US$1.00 on June 20, 2001, the Central Bank announced a series of defensive
measures including intervention in the foreign exchange market by selling U.S.
dollars and buying reais. Following the terrorist attacks in New York and
Washington D.C. on September 11, 2001, the real devalued to a low of R$2.80 per
US$ 1.00 on September 21, 2001. The real subsequently recovered, but in 2002,
and particularly in the second and third quarters in advance of the elections,
the real again devalued and on December 31, 2002 the exchange rate was R$3.53
per US$ 1.00. The real has since recovered and since mid-2003 has been
relatively stable, with an exchange rate of R$2.89 per US$ 1.00 at December 31,
2003 and R$2.97 per US$1.00 at May 31, 2004. However, there can be no assurance
that the real will maintain its current value against the U.S. dollar or that
the Brazilian government will not reimplement the trading band policy or any
other type of currency exchange control mechanism.

     We contracted swap transactions exchanging our U.S. dollar-denominated debt
obligations for the domestic interest rate aiming to protect us from the
devaluation of the real. However, our hedging strategy may not be successful in
minimizing our exposure to certain market risks which could result in monetary
losses. See Item 11. Quantitative and Qualitative Disclosures about Market Risk
for information about our foreign exchange risk hedging policy. Devaluations of
the real relative to the U.S. dollar may also create additional inflationary
pressures in Brazil that may negatively affect us. Such conditions generally
curtail access to foreign financial markets and may require government
intervention, including recessionary governmental policies.

     Controls and restrictions on U.S. dollar remittances could harm our ability
to make payments under the Notes.

     Holders of the Notes may be adversely affected if the Brazilian government
imposes restrictions on the remittance to foreign investors of the proceeds of
their investments in Brazil and the conversion of the real into foreign
currencies.

     The Brazilian government currently restricts the ability of Brazilian and
foreign persons or entities to convert Brazilian currency into U.S. dollars or
other currencies other than in connection with certain authorized transactions
registered with the Central Bank of Brazil (the "Central Bank") or otherwise
permitted under Central Bank regulations. Furthermore, it is uncertain whether
the Brazilian government will in the future impose a more restrictive exchange
control policy (including by changing existing regulations) that would have the
effect of preventing or restricting our access to foreign currency with which to
meet foreign currency obligations or expenses, including obligations under the
Notes. For instance, there can be no assurance that mechanisms for obtaining in
Brazil the U.S. dollars necessary to perform such obligations will exist at the
time of payment, a more restrictive control policy will not be adopted a special
authorization from the Central Bank to make payments in foreign currency will
not be required. There can be no assurance that existing or future mechanisms
will remain legally or commercially available or that any necessary Central Bank
approval will be obtained or that such approval will be obtained on a timely
basis.

     The likelihood that such restrictions may be imposed by the Brazilian
government at any time may be affected by, among other factors beyond our
control such as the extent of Brazil's foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
size of Brazil's debt service burden relative to the economy as a whole,
Brazil's policy toward the International Monetary Fund (the "IMF"), political
constraints to which Brazil may be subject, and global economic and political
conditions, all of which are factors that are beyond our control. Although
payments by issuers located in Brazil in respect of securities issued in the
international capital markets to date have not been subject to restrictions
imposed by the Brazilian government, no assurance can be given that such
restrictions may not be imposed in the future. Any such restrictions could
adversely affect our business, operations or prospects, and our ability to make
timely payments on the Notes, as the case may be.

     Developments impacting the liquidity of the Brazilian economy may adversely
affect our financial condition or results of operations.

     The Brazilian economy has been subject to a number of developments or
conditions that have significantly affected the availability of credit. External
factors, including the devaluation of the Mexican peso in December 1994, the
Asian economic crisis of 1997, the Russian economic crisis of 1998, the
Brazilian economic crisis of 1999, the Argentine economic crisis in 2001 and
elections in Brazil in 2002 have from time to time resulted in

                                       10
<PAGE>

significant outflows of funds and reductions in the amount of foreign currency
being invested in Brazil, notwithstanding significant increases in interest
rates designed to stem capital outflow. In addition, to control inflation in
general, the Brazilian government, in order to comply with covenants under IMF
financing, has maintained a tight monetary policy, with associated high interest
rates, and has constrained the growth of credit. The combination of these
developments has made it difficult at times for certain companies and financial
institutions in Brazil to obtain cash and other liquid assets. Any future
disruptions affecting the liquidity of the Brazilian economy may adversely
affect our financial condition or results of operations.

     The failure of Brazil to secure IMF financing could lead to economic
instability and subsequently affect our ability to make payments under the
Notes.

     During the second quarter of 2002, the Brazilian financial markets were
pressured as a result of uncertainties related to the potential economic
policies of the next government, the general increase of the global aversion to
risk and uncertainty in the international financial markets. The Brazilian
government tried to mitigate such uncertainties and ease the upcoming political
transition by reinforcing its economic policies and requesting the termination
of its previous agreement with the IMF and entering into a new agreement with
the IMF that was set to expire at the end of 2003. In September 2002, the IMF
approved this new facility in the total amount of approximately US$30 billion.
US$3.0 billion was drawn at the time of formal approval in September; a second
tranche of US$3.0 billion was drawn after the first review in December 2002.
During 2003, the IMF approved the drawdown of a third tranche of US$4.1 billion
in March and a further tranche of US$9.3 billion in June. In September 2003, the
IMF approved an additional drawdown of US$4.2 billion. In November 2003, the IMF
approved a standby agreement with Brazil in the approximate amount of US$14.0
billion, consisting of US$8.0 billion under the September 2002 facility that has
not yet been drawn down and approximately US$6.0 billion in new funding. The IMF
also agreed to the Brazilian government's request to repay approximately US$5.8
billion of loans in 2005 and 2006. The Brazilian government has successfully met
all conditions and reviews imposed by the IMF, but it may be unable to meet the
conditions to draw the remaining funds under the IMF package.

     Any inability to secure IMF financing could adversely affect Brazil's
ability to meet its domestic and international debt obligations, lead to
economic instability and result in a loss of investor confidence. Any such
effect could have a material adverse effect on our results of operations and
financial condition, their ability to make payments under the Notes, and the
market price of the Notes.

     Developments in other emerging markets may adversely affect our financial
condition and results of operations.

     The market for securities issued by Brazilian companies is influenced by
economic, political and market conditions in Brazil and in other emerging market
countries, especially those in Latin America, and in the United States. Although
economic conditions are different in each country, investors' reactions to
developments in one country may affect the capital markets in other countries.
Developments or conditions in other emerging market countries have from time to
time significantly affected the availability of credit in the Brazilian economy
and resulted in considerable outflows of funds and declines in the amount of
foreign currency invested in Brazil. Such developments or conditions may
adversely affect our ability to borrow funds on acceptable terms or to raise
capital when and if there should be a need.

     For example, the market for debt instruments issued by emerging market
companies (including Brazilian companies and banks) experienced increased levels
of volatility, which adversely affected the price of such securities, following
each of the devaluation of the Mexican peso in December 1994, the Asian economic
crisis of 1997, the Russian economic crisis of 1998, the Brazilian economic
crisis of 1999, and--to a more localized degree--the Argentine economic crisis
in 2001 and elections in Brazil in 2002. Periods of increased market volatility
may have a material adverse effect on our financial condition and results of
operations.

     Additionally, since September 11, 2001, the threat of a major terrorist
attack has exacerbated volatility in the financial markets and caused consumer,
corporate and financial confidence to weaken. We cannot predict what effects any
future terrorist attacks may have on the international, U.S. or Brazilian
economies or financial markets. Further, there can be no assurance as to what
consequences those events may have on investors' perceptions of risk

                                       11
<PAGE>

in emerging markets or securities in general. Increased volatility in financial
markets may adversely affect our ability to access the international financial
markets and/or their results of operations.

  Risks related to Argentina

     The macroeconomic conditions currently prevailing in Argentina have had,
and may continue to have, a material adverse effect on MFA's results of
operations and financial condition.

     At the end of 2001, Argentina suffered a deep social and economic
deterioration accompanied by high political and economic instability. The
restrictions on bank deposits withdrawals, the suspension of payment of
Argentina's external debt and the abrogation of the convertibility of the peso
(and the consequent depreciation of the peso against the dollar) have resulted
in a deep negative shock to the Argentine economic system, resulting in
contraction of the economic activity, increasing inflation and high volatility
of the exchange rate. In 2002, widespread political protests and social
disturbances occurred on a near-daily basis. The rapid and radical nature of the
recent changes in the Argentine social, political, economic and legal
environment, including tax regulations, and the absence of a clear political
consensus in favor of the government and any particular set of economic
policies, have created great uncertainty. As a result, virtually all commercial
and financial activities in Argentina were reduced significantly in 2002. Since
the second half of 2002, the exchange rate has stabilized and economic activity
has shown signs of recovery, fuelled by industrial sectors. Nevertheless the
economic and political instability is still significant and may continue to
affect the Argentine economy. In addition the Argentine insolvency and the lack
of restructure of its sovereign debt may hinder the economy growth. Furthermore,
the uncertainty regarding the adoption of government measures related to key
sectors of the economy, such as public service companies and the financial
system have had a negative impact over private companies' growth and
investments.

     Inflation slowed in 2003, with the Argentine consumer price index
increasing by 3.7% and the wholesale price index increasing by 1.9% in 2003. For
the first three months of 2004, the Argentine consumer price index increased by
1.1% and the wholesale price index increased by 1.6%. Despite recent slowing of
inflation rates, if the Central Bank issues significant amounts of currency to
finance public sector spending or to assist financial institutions in distress
or if the value of the peso cannot be stabilized by positive expectations for
Argentina's economic future and/or strict fiscal and monetary policies, an
increase in inflation rates can be expected.

     The Central Bank of Argentina has imposed restrictions on the transfer of
funds abroad, which may have a negative effect in the event MFA has to make
payments as a guarantor of the Notes.

     From December 3, 2001 until January 2, 2003, the Argentine government
imposed a number of monetary and currency exchange control measures that
included restrictions on the free disposition of funds deposited with banks and
tight restrictions on transferring funds abroad, with certain exceptions for
transfers related to foreign trade and other authorized transactions. Effective
January 2, 2003, the Argentine Central Bank's prior authorization for the
transfer of funds abroad in order to make payments of principal and/or interest
is no longer required provided that certain conditions are met. In this regard,
if MFA would have to make payments as a guarantor of the Notes, that would only
be possible under argentine law if MFA meets the requirements stated under the
Central Bank of Argentina regulations, specially under Communication "A" 3602 of
the Central Bank of Argentina (and its complementary and applicable regulations)
and informs the Central Bank of Argentina the existence of the indebtedness.
Although the Central Bank of Argentina regulations' requirements have generally
been eliminated, there can be no assurance that the Central Bank will not again
restrict the transfer of funds abroad for principal and/or interest payments by
MFA as guarantor of the Notes which would limit our ability to make payments
under the Notes.

       Business Related Risks

     Economic downturns could reduce demand for our services.

     The results of our operations are generally affected by the level of
economic activity in Brazil and the other markets in which we operate through
our franchisees. A decline in economic activity typically results in a decline
in both business and leisure travel and, therefore, the volume of car rental
transactions decreases. In the event of a decline in car rental activity, we may
temporarily reduce our rental rates or our fleet size to meet competitive

                                       12
<PAGE>

pressures, which could adversely affect our results of operations. In addition,
a decline in economic activity may adversely affect our used car sales business
and a prolonged decline in economic activity may adversely affect our fleet
management business upon a reduction in the number of cars contracted by our
customers.

     Competition is intense in the car rental business.

     The principal characteristic of the car rental industry is competition in
both prices and services. There are currently more than 2,300 car rental
companies operating in Brazil. In any given location, we may encounter
competition from international and Brazilian car rental companies. Hertz
Corporation operates directly in Brazil, while Avis operates in the Brazilian
market through franchisees. International competitors such as these may have
greater financial resources than us. In 2001, the Brazilian company Unidas was
acquired by a Portuguese group called Solucoes Automovel Globais - SAG and is
attempting to increase its car rental volumes by lowering its prices. In 2003,
Europcar, one of the largest car rental corporations in Europe, commenced
operations in Brazil through a master franchisee. In the fleet management
business, our main competitors are on one hand the same as our car rental
business competitors, on the other hand, companies engaged solely in the fleet
management business, such as Lease Plan, an operational leasing company
affiliated with Volkswagen, as well as Unidas Corporate Fleet.

     We are also subject to competition in other Latin American countries in
which we conduct franchising operations. Competition from other companies in
Brazil and, to a lesser extent, in other markets from both international and
local car rental companies could harm our business, financial condition and
results of operations.

     Part of our business is highly seasonal.

     The car rental segment, specifically that portion of rentals relating to
tourism, peaks in the months of January, February, March and July, due to the
popularity of these months as vacation periods in South America. Any occurrence
that disrupts travel patterns during these months could have a material adverse
effect on our results of operations.

     We usually increase the size of our vehicle fleet during the months of
January, February, March and July to accommodate any increased activity during
these months. However, a major portion of our expenses are fixed, such as rental
and personnel expenses, and cannot be decreased in months where there is a
decrease in demand. If we do not successfully manage the size of our fleet
during periods of decreased business activity, our annual operating performance
may be adversely affected.

     We could be harmed by decreases in the fuel supply.

     Our operations could be harmed by any limitations in fuel supplies, by
mandatory allocation or rationing regulations on fuel or by significant
increases in fuel prices. Although fuel prices have risen substantially, Brazil
has not experienced a material disruption in fuel supplies in the recent past.
From January 1, 2003 to May 31, 2004, there was an decrease of approximately
8.2% in fuel prices. In June, 2004, however, fuel prices are expected to
increase by approximately 4.5%. The international market is currently very
unstable, and a further increase in fuel prices is likely to occur in the
future. This may result in lower demand for car rental services from our
customers, who bear the risk of higher fuel prices.

     We bear the risk of fluctuations in the value of our car fleet.

     We bear the risk of fluctuations in the residual market value of our entire
rental fleet. The residual market value of our fleet is influenced by different
factors, including general economic conditions and the pricing policies of car
manufacturers (which, in turn, are influenced by the Brazilian government's
fiscal policies). Our proceeds from car sales depend on the prices we negotiate
in the used car market at the time of sale and, accordingly, are subject to
market conditions at the time of sale. If negotiations in the used car market
result in lower prices, our business, financial condition and results of
operations could be harmed.

     Our cars' resale prices are estimated, since we do not have repurchase
agreements with car manufactures. Consequently, the actual depreciation costs
associated with our cars cannot be determined in advance. An overestimation of
our depreciation expenses could lead us to increase our rental prices beyond
what is necessary in

                                       13
<PAGE>

order to recover depreciation, which in turn could have the effect of decreasing
our competitiveness. On the other hand, an underestimation of our depreciation
expenses could lead us to reduce our rental rates more than necessary in order
to recoup vehicle depreciation expense, which could cause our operating margin
to decline. In either event, if our estimates of future depreciation costs are
inaccurate, our business, financial condition and results of operations could be
adversely affected.

     We are dependent on the air travel industry.

     The portion of our car rental segment conducted at airport locations
accounts for a substantial portion of our revenues and is essential to our
ability to compete. During 2003, approximately 47.9% of our car rental revenues
were derived from our airport rental locations (excluding revenues from our
franchisees). A decrease in air travel or any event that disrupts the air travel
patterns at airport facilities for a continued period of time could harm the
business, financial condition and results of operations of our car rental
business. Disruptive events include substantially higher air fares, labor
unrest, airline bankruptcies or consolidations, a downturn in the economy, the
outbreak of war, high-profile crimes against tourists, terrorist incidents and
natural occurrences.

     We are subject to the risk of non-renewal of airport concessions.

     In Brazil, we conduct, directly, rental operations at 31 airports and our
franchisees conduct rental operations at 33 other airports. In other Latin
American countries, our franchisees conduct rental operations at 8 airports. We
conduct operations at each airport in Brazil pursuant to one or more concession
agreements granted by the federal airport authority (57 concessions), state
airport authorities (10 concessions), and local authorities (7 concessions) in
the case of airports located in smaller cities. We also conduct operations in 3
small private airports. In general, these concession agreements are subject to
competitive bidding at the time of renewal. The terms of the airport concession
agreements with federal and state authorities vary from one to fifteen years,
while most of the agreements with local authorities and private entities in
smaller cities have an indefinite term. Of our 44 concessions, 42 were granted
by the federal airport authority and two were granted by local authorities. Of
these concessions, 14 are scheduled to expire in 2004. Franchising has been
granted 18 concessions, in locations that are operated by franchisees under
franchising agreements, 5 of which are scheduled to expire in 2004. In 2003, we
renewed 12 of the 12 expired concessions, even though only 6 were scheduled to
expire. The franchisees that operate the remaining 15 airport locations are
granted the respective concession directly, and control and negotiate the
renewal of the concession directly with the appropriate authority. We cannot
predict whether we will continue to be successful in renewing all or
substantially all of these concessions on acceptable terms. The loss of a
significant number of small airport concessions or the loss of any major airport
concession could harm our business, financial condition and results of
operations.

     We do not maintain insurance against certain risks.

     Our business exposes us to claims for personal injury, death and property
damage resulting from the use of the cars we rent. In addition, our rental cars
may be damaged or stolen while they are being used by customers. We do not carry
insurance to cover the costs of these claims or of repairing or replacing
damaged or stolen cars. Instead, we sell optional insurance coverage to rental
customers in order to cover these risks. Although historically we have been able
to recover the costs of these risks, we could be exposed to uninsured liability
that exceeds historical levels. Our business also exposes us to workers'
compensation claims and to other employment-related claims, for which we do not
maintain insurance.

  Risks Relating to Localiza

     We have a high level of debt and are subject to restrictive covenants.

     As of December 31, 2003, we had total debt of R$227.2 million, of which
R$213.5 million was long-term debt. As of December 31, 2003, we had net debt
(total debt less cash, cash equivalents and marketable securities) of R$68.0
million, and our consolidated ratio of net debt to equity was 0.28 to 1.00. We
expect to incur additional indebtedness in the future. Our long-term debt is
subject to restrictive covenants. See Item 5B. - Liquidity and Capital
Resources.

                                       14
<PAGE>

     Our level of leverage will have important consequences to holders of the
Notes, including the following:

     o    our ability to obtain additional financing for working capital,
          capital expenditures, acquisitions, expansion of our fleet, increasing
          the number of locations or other purposes, may be impaired;

     o    a substantial portion of our cash flow will be required to meet debt
          service obligations, which will reduce the amount of funds available
          for other purposes. Approximately 3.6% of our budgeted cash
          requirements for 2004 consist of amounts required to service debt; and

     o    we may be more vulnerable to a downturn in our business, and may be
          restricted in our ability to respond to price competition or changes
          in the economy generally.

     We expect to need to refinance the Notes at maturity in 2005.

     Our ability to meet our debt service obligations depends on our future
operating performance and financial results, which will be subject to economic,
financial, competitive and other factors which are beyond our control. Based
upon our current level of operations and our anticipated growth, we believe that
our cash flow from operations may be insufficient to meet the scheduled
principal payment of the Notes at maturity in 2005. As a result, we expect to be
required to refinance a portion of our debt under the Notes. There can be no
assurance that any refinancing would be possible or that any additional
financing could be obtained on satisfactory terms, in which case we may not be
able to meet our obligations under the Notes.

     We are dependent on our ability to finance our fleet.

     Our ability to finance our fleet will depend on our future operating
performance and financial results, which will be subject to economic, financial,
competitive and other factors which are beyond our control. Based upon our
current level of operations, we believe that funds provided from the issuance of
the Notes, cash flow from operations and access to debt financing, if necessary,
should enable us to renew our fleet for the foreseeable future. However, adverse
economic conditions in Brazil, among other factors, could impair our ability to
generate cash flow from operations. For example, continued economic uncertainty
in Brazil could adversely affect the used car market, which during 2003
accounted for 47.2% of our net revenues. Because a portion of cash flow from
operations is required for debt service, we could be required to delay fleet
renewal in the event that adverse economic conditions in Brazil persist.
Significant delays in fleet renewal could make our car rental services less
competitive, and could result in increased repair and maintenance expenses. For
the fleet management business, there is the risk that we will not be able to
renew the contracts and therefore we will lose customers.

     We are dependent on our principal executive officers.

     Our existing operations and continued future growth depend in part on the
active participation of our principal executive officers, each of who has
substantial experience in the Brazilian car rental industry. The loss of the
services of these individuals could harm our business, financial condition and
results of operations.

  Risks Relating to the Notes

     We may not be able to obtain approval from the Central Bank of Brazil or
from the Central Bank of Argentina for payments by future guarantors or by MFA.

     The Notes are guaranteed by our four subsidiaries, which are:

     o    Total Fleet, a Brazilian corporation;

     o    Franchising, a Brazilian corporation;

     o    Prime, a Brazilian corporation; and

     o    MFA, an Argentine corporation.

                                       15
<PAGE>

     The Central Bank of Brazil has authorized Total Fleet, Franchising, and
Prime to remit funds overseas in connection with any payments these companies
are required to make as guarantors of the Notes. The Notes will be effectively
subordinated to the claims of creditors of a Localiza subsidiary that does not
guarantee the Notes. Therefore, the indenture we entered into in connection with
the issuance of the Notes requires that any future Localiza subsidiary guarantee
the Notes. Accordingly, if we form or acquire a Brazilian subsidiary in the
future, that subsidiary will be required to guarantee the Notes and will have to
obtain Central Bank of Brazil's approval in order to remit funds overseas under
the guarantee. If such a subsidiary guarantor does not obtain the necessary
approval from the Central Bank of Brazil, it may not be able to meet its
obligations under the guarantee.

     It may be difficult to enforce judgments against us.

     We have been advised by our Brazilian counsel, Pinheiro Neto Advogados,
that a judgment for a monetary claim obtained in a U.S. court arising out of our
obligations under the Notes will be enforceable in Brazil only if the judgment
has been previously confirmed by the Brazilian Federal Supreme Court. A judgment
obtained against us in foreign courts in respect of any sum payable by us under
the Notes would be recognized and confirmed by the Brazilian Federal Supreme
Court only if this foreign judgment:

     o    fulfills all formalities required for its enforceability under the
          laws of the country where the foreign judgment is granted;

     o    is issued by a competent court after due service of process upon the
          parties against whom the judgment is entered in accordance with
          applicable provisions of Brazilian law;

     o    is final and not subject to appeal;

     o    is for the payment of a certain sum;

     o    is authenticated by a Brazilian consulate in the country where the
          foreign judgment is issued and is accompanied by a translation into
          Portuguese by a certified translator; and

     o    is not contrary to Brazilian national sovereignty, public policy or
          public morality.

     It may be difficult for you to obtain the Brazilian Federal Supreme Court's
confirmation of a judgment in a timely manner, or at all.

     Our subsidiary MFA, an Argentine corporation, is a guarantor of the Notes.
We have been informed by our Argentine counsel, Estudio Beccar Varela, that the
enforceability in Argentina of a judgment for a monetary claim obtained in a
U.S. court arising out of MFA's obligations under its guarantee is dependent on
such judgment not violating the principles of public policy in Argentina and
meeting the requirements described in the Argentine Civil and Commercial
Procedural Code, which are as follows:

     o    the judgment, which must be final in the jurisdiction where it was
          rendered, must be issued by a competent court according to the laws on
          conflicts of law and jurisdiction and must have resulted from either a
          personal action, or an in rem action with respect to personal property
          which was transferred to Argentine territory during or after the
          commencement of the foreign action;

     o    the defendant against whom enforcement of the judgment is sought must
          have been personally served with the summons and, in accordance with
          due process of law, must have been given an opportunity to defend
          against the foreign action;

     o    the judgment must be valid in the jurisdiction where rendered and its
          authenticity must be established in accordance with the requirements
          of Argentine law;

     o    the judgment must not violate the principles of public policy of
          Argentine law; and

     o    the judgment must not be contrary to a prior or simultaneous judgment
          of an Argentine court.

                                       16
<PAGE>

     The guarantees may be challenged as fraudulent conveyances.

     We have been advised by our Brazilian counsel, Pinheiro Neto Advogados,
that Brazilian law will not limit the enforceability of the guarantees of Total
Fleet, Franchising and Prime, as long as each guarantee complies with all the
legal requirements for its creation and is enforceable under the laws of the
United States and New York.

     Similarly, we have been advised by our Argentine counsel, Estudio Beccar
Varela, that Argentine law will not limit the enforceability of the guarantee of
MFA, as long as it is enforceable under the laws of the United States and New
York.

     However, U.S. federal and state fraudulent conveyance or similar laws could
limit the enforceability of the guarantees. If a subsidiary guarantor received
less than reasonably equivalent value or fair consideration for its guarantee,
the obligations of such subsidiary guarantor under its guarantee could be
avoided or subordinated to its other debts if, at the time it gave the
guarantee, the subsidiary guarantor:

     o    was insolvent or rendered insolvent by giving its guarantee;

     o    was engaged in a business or transaction for which its remaining
          assets constituted unreasonably small capital; or

     o    intended to incur debts beyond its ability to pay the debts as they
          mature.

     There is no liquid market for the Notes.

     Although CSFB has indicated that it intends to make a market in the Notes,
it is under no obligation to do so and it may not be legally able to do so. CSFB
may discontinue any market-making it conducts at any time without notice, at its
sole discretion. Accordingly, there can be no assurance as to the liquidity of
any market for the Notes. Even if a trading market is maintained, it may have
little liquidity. If the Notes do trade, the trading prices will vary depending
upon prevailing interest rates, the market for similar securities, our
performance and other factors.

ITEM 4. INFORMATION ON THE COMPANY

A.   History and Development of the Company

     Localiza Rent a Car S.A. ("Localiza") is a sociedade anonima incorporated
under the laws of the Federative Republic of Brazil. Localiza was incorporated
on September 14, 1973 in Belo Horizonte, Brazil, and is subject to Brazilian
legislation. As of December 31, 2003, under the Brazilian Corporate Law,
Localiza has 15,360,000 outstanding common shares, no par value per share, and
its capital amounts to R$147.0 million.

     Our principal executive office is located at Avenida Bernardo Monteiro,
1563, Funcionarios 30150-902, Belo Horizonte, Minas Gerais, Brazil. Our
telephone number is 55-31-3247-7040. Our internet website address is
http://www.localiza.com.br.

     Our agent for service of process in the United States is Puglisi &
Associates, located at 850 Library Avenue, Suite 204, P.O. Box 285, Newark,
Delaware 19715. Their telephone number is 302-738-6680.

  Capital Expenditures

     We invested R$7.3 million in property and equipment during 2003, compared
to R$6.0 million in 2002 and R$7.2 million in 2001.

     Our capital expenditures consist principally of:

     o    the opening of new car rental and sale locations;

     o    remodeling and updating of current car rental and sale locations;

                                       17
<PAGE>

     o    the improvement of our information systems; and

     o    the purchase and repair of our property and equipment.

     We do not have any significant capital expenditures scheduled or in
progress. We expect any capital expenditures in the future to be financed either
by working capital or by short-term borrowings. See Item 5. Operating and
Financial Review and Prospects--Liquidity and Capital Resources

  Recent Corporate Events

     On March 31,2004, Franchising was spun-off and generated a new company
named Localiza Franchising Brasil SA, currently responsible for the Brazilian
franchising operations. Franchising just maintained in its books the investment
in MFA.

B.   Business Overview

     We believe that we comprise the largest rental car network in Latin America
based on the number of rental locations, revenues and fleet size. As of December
31, 2003, our network included 309 car rental locations (71 owned and 238
franchised) in 8 countries and 219 cities. In Brazil, we also believe we are the
market leader in each of the car rental lines of business, including
replacement, and fleet management markets and also have the largest number of
car rental locations at the principal Brazilian airports. In addition to our car
rental activities, we believe that we are a leading Brazilian used car seller.
We believe that the integration of our car rental, fleet management and used car
sales activities is a key competitive advantage.

     We operate four complementary businesses:

     o    Car rental. We provide daily and monthly car rentals to business and
          leisure travelers through direct individual sales, corporate preferred
          supplier agreements and travel agency bookings. As part of our car
          rental business, we provide replacement vehicles for cars that are out
          of service, generally due to accidents, theft or mechanical failure,
          through partnerships with insurance companies and automobile
          manufacturers.

     o    Fleet management. Our subsidiary, Total Fleet, provides long-term
          fleet rental and fleet management services to corporate customers.

     o    Used car sales. Our subsidiary, Prime, intermediates sales of car
          rental and fleet management used cars through 15 resale locations in
          Brazil. Cars from our rental business are generally sold after one
          year of service, while cars from our fleet management business are
          sold after termination of the contract with the customer (which lasts
          an average of three years).

     o    Franchising. We franchise the Localiza brand name in 174 car rental
          locations serving smaller markets in Brazil and in 64 car rental
          locations in seven other Latin American countries.

     During 2003, used car sales accounted for 47.2% of our net revenues, car
rentals accounted for 29.2%, fleet management accounted for 22.6% and
franchising accounted for 1.0%.

     The table below sets forth the net revenues we earned in each of these
businesses for the periods indicated.

                                               Year Ended December 31,
                                          ------------------------------------
                                             2001         2002          2003
                                          ----------   ----------   ----------
                                                  (in thousands of reais)

Car rental..............................  R$ 144,253   R$ 162,595   R$ 155,291
Fleet management........................     120,229      118,782      120,309
Franchising.............................       5,056        5,111        5,456
Used car sales..........................     150,907      190,476      250,978
                                          ----------   ----------   ----------
 Total net revenues.....................  R$ 420,445   R$ 476,964   R$ 532,034
                                          ==========   ==========   ===========

                                       18
<PAGE>

     The table below sets forth our net revenues from our car rental business in
each of the five main geographic regions in Brazil.

                                               Year Ended December 31,
                                         --------------------------------------
                                             2001          2002         2003
                                         -----------   ----------   -----------
                                                 (in thousands of reais)
Region:
South................................... R$   21,617   R$  25,108   R$   24,037
Southeast(1)............................      71,265       79,614        76,066
Central-West............................       8,696       11,284        11,526
North...................................       4,551        5,295         4,954
Northeast...............................      38,124       41,294        38,708
                                         -----------   ----------   -----------
   Total................................ R$  144,253   R$ 162,595   R$  155,291
                                         ===========   ==========   ===========

     The table below sets forth our net revenues from our fleet management
business in each of the five main geographic regions in Brazil.

                                               Year Ended December 31,
                                         --------------------------------------
                                           2001          2002         2003
                                         -----------   ----------   -----------
                                                (in thousands of reais)
Region:
South...................................  R$  10,298   R$   9,012   R$    5,797
Southeast(1)............................     100,863      102,842       111,184
Central-West............................       1,740        1,274           135
North...................................           -            6             5
Northeast...............................       7,328        5,648         3,188
                                          ----------   ----------   -----------
   Total................................  R$ 120,229   R$ 118,782   R$  120,309
                                          ==========   ==========   ===========

     The table below sets forth our net revenues from our used car sales
business in each of the five main geographic regions in Brazil.

                                               Year Ended December 31,
                                         --------------------------------------
                                           2001          2002         2003
                                         -----------   ----------   -----------
                                                (in thousands of reais)
Region:
South................................... R$   36,364   R$  35,394   R$   43,831
Southeast(1)............................      74,373      103,154       136,117
Central-West............................      19,696       19,588        29,283
North...................................       4,708        7,460         7,939
Northeast...............................      15,766       24,880        33,808
                                         -----------   ----------   -----------
   Total................................ R$  150,907   R$ 190,476   R$  250,978
                                         ===========   ==========   ===========

(1) A large portion of our revenues in Brazil are concentrated in the Southeast
due to the concentration of population in the region, including the states of
Sao Paulo, Rio de Janeiro and Minas Gerais.

  Seasonality

     The tourism segment of the car rental market peaks in the months of
January, February, March and July due to the popularity of these months as
vacation periods in South America. Other areas of our business do not experience
large fluctuations in their operations depending on the season.

                                       19
<PAGE>

  Rental Customers

     Car Rental. With a Brazilian network of 245 locations, including 71 owned
by us and 174 owned by franchisees, we serve:

     o    the business market, primarily corporations and individuals, and

     o    the leisure market, primarily individuals and families on vacation.

     With approximately 322.5 thousand rental transactions completed in 2003, we
believe we are the market share leader in each of these car rental segments.

     Car rental customers in the business market include individuals who rent
cars for their business trips and corporations that rent cars for their
traveling executives. The overall level of economic activity in Brazil strongly
influences the car rental business market. We have a diversified group of
customers in the car rental business market, and in 2003, our ten largest
corporate customers accounted for 9.2% of our car rental bookings. Bookings made
through travel agencies are an important source of business for the business
travel market. Business customers are served primarily from our airport
locations.

     Car rental customers in the leisure market include principally individuals
and their families on vacation. A significant number of leisure customers are
the same customers who rent from us when they are on business trips. The tourism
industry exerts a strong influence on the car rental needs of customers in this
market, particularly in the state of Rio de Janeiro and in those states located
in the northeast of Brazil. Bookings through travel agencies are an important
source of business in respect of leisure market customers. In 2003,
approximately 17.7% of our car rental revenues derived from bookings made
through travel agencies. Customers in the leisure market are also served
primarily from our airport locations.

     Customers in the replacement business, which is part of the car rental
market, primarily consist of insurance companies acting on behalf of customers,
and individuals who are temporarily unable to use their cars because of
accident, theft or mechanical failure. These customers are served primarily from
locations in urban and suburban areas. We work directly with two of the largest
insurance companies in Brazil and we believe that through third-party
administrators we work with all of the largest insurance companies in Brazil.

     Car manufacturers are also a source of customers for the replacement
market. This is due to the fact that strong competition is leading Brazilian
manufacturers to offer replacement vehicles as part of their new car warranties.
We aggressively pursue the replacement business and we provide replacement
vehicles indirectly (through third-party administrators) to two of the largest
car manufacturers in Brazil.

     Corporations with occasional or additional automobile fleet needs usually
rent our cars on a monthly basis.

     Fleet Management. Customers in the long-term fleet management market
include large and medium-sized corporations that have determined that it is more
cost effective to outsource their automobile fleet requirements. Total Fleet's
customers include many major Brazilian and international corporations.

     Total Fleet has approximately 160 corporate customers. In 2003, the 23
largest customers accounted for approximately 70.1% of Total Fleet's volume of
rented vehicles. In 2003, approximately 33.4% of Total Fleet's volume was
attributable to customers with fleets of less than 100 vehicles, 47.2% of volume
was attributable to 18 customers with fleets of between 100 and 600 vehicles and
19.4% of volume was attributable to two customers with fleets of more than 600
vehicles. In 2003, revenues from the two largest customers represented
approximately 13% of Total Fleet's gross revenue.

  Rental Operations and Services

     We have built brand recognition and customer loyalty in Brazil through:

     o    our nationwide car rental operations offering high-quality, new cars,
          and

                                       20
<PAGE>

     o    the overall quality and efficiency of our customer service.

     Rental Network. Currently, our network in Brazil consists of 245 locations,
71 of which we own and 174 of which are owned by franchisees. The number of
locations in Brazil which we own increased by one, to 71 in 2003 from 70 in
2002.

     The number of locations in Brazil which our franchisees own decreased by
12, to 174 in 2003 from 186 in 2002, due to the termination of eleven franchisee
operations as a result of the termination or expiration of concession
agreements. Three franchisees were not renewed due to low profitability. We
intend to resell the franchises that were not renewed in locations where
profitability was satisfactory. Other concessions in Brazil were not renewed
because we assumed their operations. In the case of small locations in Ecuador
and Mexico, they were closed due to strategic consolidation of operations in
larger and more central locations.

     Our presence throughout Brazil increases our brand recognition. Through our
network, we are the only car rental company present in almost every Brazilian
city with a population greater than 200,000 inhabitants. In addition, we have
well-established locations in cities which do not have sufficient volume to
support more than one car rental company. Our network has car rental locations
in all major and many regional Brazilian airports and in other selected areas
such as business centers, shopping malls and other locations with heavy traffic.

     The 71 locations we own are in the capitals of 18 Brazilian states and
other large cities in Brazil. Of these locations, 31 are in airport areas, and
the remaining 40 are strategically located to serve important Brazilian car
rental markets. In 2003, our airport locations accounted for approximately 47.9%
of our car rental revenues.

     In addition, we believe that our national network of rental locations gives
us a considerable advantage over our competitors in the developing market for
replacement vehicles. We believe that insurance companies generally prefer to
deal with rental agencies that are able to provide services throughout Brazil
because this presence facilitates rapid and convenient service.

     In September 1998, Total Fleet entered into an agreement with Fleet
Synergy, an international network formed by companies in the outsourcing,
renting and fleet management businesses, with operations in Europe, Asia, United
States, Australia and Canada, comprising an aggregate fleet of approximately
800,000 cars. Fleet Synergy's partners take advantage of an electronic
communication network and a database of country-specific fleet market
information, thus receiving support and advice to help them increase fleet
effectiveness and control costs throughout the world.

     Fleet. The overall size of our fleet remained relatively stable in 2003,
mainly due to economic conditions in Brazil. We believe that our network has the
largest car rental fleet in Brazil. In line with consumer demand, Localiza's
fleet consists primarily of small, domestically manufactured vehicles such as
the FIAT Palio, General Motors Celta and the FIAT Siena. We also offer a variety
of full-size vehicles, such as the General Motors Astra and Toyota Corolla.
Total Fleet has a greater variety of car models, depending on its customers'
requests. In 2003, the average age of a car in our fleet was approximately 6
months for car rental and 21 months for fleet management.

     In 2003, we invested R$77.2 million (net of proceeds from car resales) to
renew our fleet compared to R$50.8 million in 2002 and R$126.1 million in 2001.

     The table below sets forth the number of cars in our fleet and the number
of cars in the fleets of our domestic and international franchisees for the
periods indicated.

                                                            As of December 31,
                                                       -------------------------
                                                        2001     2002      2003
                                                       ------   ------    ------
Cars in our fleet..................................... 24,579   22,845    22,355
Cars in our domestic franchisees' fleets..............  5,713    5,405     5,677
Cars in our international franchisees' fleets.........    494    1,116     1,029
                                                       ------   ------    ------
     Total cars in our network fleet.................. 30,786   29,366    29,061
                                                       ======   ======    ======

                                       21
<PAGE>

     As one of the largest purchasers of cars in Brazil, we believe that we
achieve a very competitive fleet acquisition costs in the Brazilian market. We
primarily purchase FIAT cars, which we believe are particularly well suited for
the Brazilian market due to the fact that they are compact and with low
operating costs. FIAT was the leading domestic car manufacturer in 2003 and
produces some of the most popular cars in Brazil. We believe that the resale
values achieved on these cars demonstrate their ability to retain value over the
utilization period.

     The car rental, fleet management and used car sales businesses cover one
another's occasional fleet needs which may result from business events or
holidays, unavailability of models required for a fleet management contract and
shortage of supply from car manufacturers.

     Online Information System. We have developed an online information system,
which includes the latest operational systems and links all of our locations on
a real-time basis. We believe that our current information technology
infrastructure can support substantial growth in business volume without need
for significant additional investment in information systems. Through the
franchising system, all franchisee rental car processes and franchisor
management processes are managed online. In addition, we offer our fleet
management customers the possibility to perform and execute a number of fleet
managerial routines online. Our car rental customers can rent cars online, and
the system manages the reservation process. Our customers can also buy used cars
through the internet. All of our operational systems are linked to the financial
and accounting systems.

     Our investment in technology has generated an increase in the volume and
operational synergies throughout each of our core business areas and has helped
us manage our fleet more efficiently. For example, using real-time data provided
by the information system, we are able to provide 24-hour assistance to our
fleet management customers throughout Brazil and are increasingly able to manage
the balance between the fleet dedicated to our rental business and the fleet
committed to our used car sales business. Data from our information systems
provides insight into customer characteristics and preferences. We use this data
in our promotional and advertising efforts.

     Customer Service. We believe that operational efficiency and service
quality are critical to customer satisfaction and brand loyalty. We focus on
customer service at every level of our organization and we believe that this
emphasis has been an important factor in building customer loyalty and repeat
business.

     Each customer service representative is trained and motivated to respond to
the customer's needs in an efficient and courteous manner, and receives thorough
on-the-job training which emphasizes the importance of attending to bookings,
pick-ups and returns as quickly as possible. We regularly monitor our employees
to ensure that performance standards are maintained.

     The profile, age, and overall maintenance of the fleet are other key
competitive factors in this process. Each car is thoroughly inspected before
being provided to a customer. Significantly damaged cars are removed from the
fleet.

     Insurance. We offer our car rental customers the opportunity to purchase
collision damage and theft waivers, pursuant to which we waive certain potential
claims against the customer. If the waiver is purchased and the rented vehicle
is damaged or stolen, there is a cap on the customer's liability to us. Revenues
from these damage and theft waivers are included in our vehicle rental revenue.
Currently, most of our individual car rental customers purchase the damage
waiver.

     Fleet Management Services. As a result of its reputation for service and
quality and its well-trained sales force, we believe that Total Fleet is the
Brazilian market leader in the fleet management business. Total Fleet currently
serves approximately 180 fleet management corporate customers with a fleet of
8,323 vehicles as of May 31, 2004. We are also able to provide fleet management
services to our customers' fleets. As of May 31, 2004, we have 9 corporate
customers and manage approximately 577 vehicles. Through a network of
subcontractors, Total Fleet offers maintenance assistance throughout Brazil to
its fleet management customers. Total Fleet satisfies the long-term fleet
requirements of small, medium and large-sized corporations. The fleet management
business is attractive because it provides relatively consistent demand and
increases fleet utilization with lower marketing and administrative costs.

                                       22
<PAGE>

     Total Fleet tailors its fleet management services to address each
customer's specific needs. These services generally include:

     o    nationwide customer service support, which provides 24-hour customer
          assistance throughout Brazil;

     o    assistance to customers in the event of accidents or car theft;

     o    flexibility to customers who need to increase or decrease fleet size;

     o    advice and assistance in the choice of fleet mix;

     o    negotiation and purchase of cars;

     o    vehicle registration;

     o    vehicle maintenance, towing and replacement;

     o    maintenance and insurance services for managed fleets; and

     o    assistance in the case of car impoundment and traffic fines.

     Nationwide assistance to fleet management customers is coordinated through
Total Fleet's call center, a telephone hotline service that links Total Fleet
with a network of independent service stations, towing services and automobile
parts vendors throughout Brazil. A fleet management customer can contact the
call center phone number from anywhere in Brazil and a Total Fleet operator will
direct the customer to the nearest car repair location for assistance. Total
Fleet subcontracts with these service providers for maintenance and repair tasks
and certain customer-assistance services. This program enables the fleet
management business to grow with minimal investment in infrastructure.

     Total Fleet leases cars to, and manages fleets for, corporations under
contracts which can be canceled with 30 days advance notice and payment of a
charge ranging from 15% to 35% of each contract's remaining payments. The lease
period varies from 12 to 48 months with an average lease period of 36 months.
Total Fleet renders management fleet services that include maintenance,
insurance, car replacement and certain other matters depending on our customers'
requests.

  Rental Pricing

     Car Rental. Our standard car rental rates offer both limited and unlimited
mileage. We occasionally run promotional campaigns featuring price discounts and
special occasion rates.

     We regularly survey local market conditions, and regional managers are
authorized to adjust pricing within pre-determined limits to improve
competitiveness in their local markets. We price our products competitively, and
attempt to differentiate ourselves through our ability to offer nationwide
coverage and a higher overall level of service than our competitors.

     In general, our contracts with our replacement customers are for higher car
volumes and therefore prescribe a lower average rate per vehicle than the
contracts we enter into with individual car rental customers. However, we also
incur lower maintenance, marketing and administrative costs in connection with
replacement operations. As a result, we believe that the replacement market has:

     o    lower operating costs per rental due to lower mileage of the cars by
          our customers in the replacement market compared to our regular
          customers in the car rental market;

     o    higher utilization ratios due to the longer average car rental period
          in the replacement market compared to common car rentals; and

     o    higher operating efficiencies due to the increase in overall rental
          volume of our network.

                                       23
<PAGE>

     Fleet Management. Total Fleet's pricing for fleet management is negotiated
with each fleet management customer, and generally takes into consideration the
size and vehicle profile of the fleet and the type of services provided. Because
of the high volume of automobiles it purchases, Total Fleet can generally obtain
better terms and conditions from automobile manufacturers than even the largest
of corporations for whom fleet management is a non-core business. Economies of
scale also enable Total Fleet to negotiate lower maintenance and repair rates
and lower administrative expenses per car. Customers typically pay Total Fleet
on a monthly basis for fleet management services.

  Rental Sales, Advertising and Promotion

     Car Rental. Our sales, advertising and promotion strategy is designed to
build recognition of the Localiza brand throughout Brazil and the rest of Latin
America. Our network's presence in all major Brazilian and certain other Latin
American airports and our advertising in selected media have contributed to
developing strong brand awareness. Our locations in highly visible areas such as
airports and business centers are an important part of our overall marketing
strategy. We have standardized our procedures, employee uniforms, banners,
brochures and location layouts in order to present customers with a consistent
image and a high level of service quality. Uniforms, banners and brochures all
incorporate our trademark shade of green, making our locations more quickly
recognizable to frequent Brazilian travelers. Furthermore, in 2003, we began a
project to restyle our locations by implementing our trademark shade of green,
specifically the exterior areas, to further increase our brand recognition.

     We employ a team of approximately 111 salespeople to market our car rental
business to corporate customers, travel agencies and individuals. The growing
importance of travel agencies as a sales channel has led us to focus
increasingly our marketing and promotional activities on these firms.

     Because business people and relatively affluent vacationers are our
principal car rental customers, business newspapers and selected magazines are
the most used media for our advertising campaigns. In order to earn repeat
business from this important group of customers, we offer special services such
as expedited rental service for frequent renters.

     We target frequent renters by using direct marketing strategies based upon
affinity and loyalty programs. We have implemented a loyalty program that gives
free rentals as rewards to frequent customers.

     We market our replacement services to insurance companies and automobile
manufacturers in Brazil. Because the insurance and automobile manufacturing
industries are concentrated in Brazil, we are able to promote our replacement
services using a limited staff and without significant capital investment. We
currently provide replacement vehicles to all the largest insurance companies in
Brazil and, as part of a new car warranty, to car makers.

     Fleet Management. In our fleet management business, Total Fleet approaches
prospective customers and develops fleet management accounts. These activities,
which are carried out by a team of 19 experienced salespeople, involve an
in-depth analysis of the prospective customer's fleet requirements and
historical expenditures, and multiple presentations to the prospective
customer's management in order to demonstrate the cost savings that can be
achieved through entering into a fleet management contract with Total Fleet.

  Used Car Sales Operations

     Our used car sales division handles vehicle procurement and sales of cars
previously used in our other businesses. The used car sales business is closely
coordinated with the car rental and fleet management businesses, and input from
these three businesses is used to determine the most appropriate fleet
composition and timing for vehicle acquisition and disposition.

     Procurement. FIAT is our principal supplier of vehicles. In 2003, we
purchased approximately 66.4% of our vehicles from FIAT. We have not entered
into a supply contract with FIAT, but maintain ongoing negotiations with FIAT
regarding the number of automobiles required for fleet renewal and the timing of
fleet acquisitions. We are one of the largest purchasers of FIAT cars worldwide.
We believe that the volume of transactions we complete with

                                       24
<PAGE>

FIAT allows us to purchase cars on the best terms available in Brazil. In
addition, we are among the largest purchasers of Volkswagen and General Motors
cars in Brazil, and also purchase vehicles manufactured by Ford.

     Car manufacturers in Brazil do not provide repurchase or guaranteed
depreciation arrangements protecting car rental companies against unfavorable
market conditions upon disposition of vehicles. Consequently, we bear the risk
of profit or loss on resale of our fleet.

     Resale. We believe that our used car sales operations distinguish us from
our competitors in the Brazilian market. While most competitors dispose of their
fleets through wholesalers or auctions, we sell a significant proportion of our
used cars directly to the public through our network of 14 used car sales
locations in 14 Brazilian cities. In 2003, approximately 78.2% of our used cars
were sold directly to individual consumers through our used car sales locations.
The remainder of our used cars is sold on a wholesale basis to used car dealers.
We refer potential customers who desire longer payment terms to local banks with
whom we have established working relationships.

     We pioneered the seminovo (almost-new) retailing concept for used cars in
the Brazilian market and believe that we have developed a reputation in the
market for reliability. Our used car sales force consists of 99 people who work
on a commission basis. As a result, we believe that the market views us as an
attractive and reliable place to purchase a used car.

  Franchising Operations

     In the past, we developed a franchise system that enabled us to expand our
network coverage in Brazil and beyond national borders at a lower incremental
cost than expanding with our own operations. This expansion was a key factor in
enabling us to strengthen our brand name, protect our market leadership position
and bolster our relationship with our customers. Through our franchising
efforts, we believe we are the leading car rental company in Latin America as
measured by the number of rental locations.

                                       25
<PAGE>

     The table below sets forth the locations, by country, of our network
franchise locations.

                                                     Franchise Locations
                                                   -----------------------
                                                   2001      2002     2003
                                                   ----      ----     ----
Country:
     Brazil.......................................  197       186      174
     Argentina....................................   48        32       34
     Ecuador......................................   10        11        9
     Mexico.......................................   10        10        7
     Bolivia......................................    5         5        6
     Paraguay.....................................    4         3        4
     Uruguay......................................    3         3        3
     Chile........................................    -         -        1
                                                    ---       ---      ---
         Total....................................  277       250      238
                                                    ===       ===      ===

     The number of our franchisee locations decreased primarily due to the
closing of several locations in Brazil. The number of locations in Brazil which
our franchisees own decreased by 12, to 174 in 2003 from 186 in 2002, due to the
termination of eleven franchisee operations as a result of the termination or
expiration of concession agreements. Three franchisees were not renewed due to
low profitability. We intend to resell the franchises that were not renewed in
locations where profitability was satisfactory. Other concessions in Brazil were
not renewed because we assumed their operations. In the case of small locations
in Ecuador and Mexico, they were closed due to strategic consolidation of
operations in larger and more central locations.

     Our involvement in franchising has benefited our other core businesses. The
wide coverage of the franchise network has been a key factor in allowing us to
secure nationwide customer contracts in the car rental, replacement vehicle and
fleet management businesses. We assist our franchisees with car procurement, and
accordingly the franchise system strengthens our bargaining position in dealings
with automobile manufacturers. We have no role in the sale of used cars by
franchisees.

     Brazilian Operations. Our Brazilian franchise network enables us to provide
nationwide coverage. The Brazilian locations are found in 178 cities. We select
franchise locations in order to serve smaller markets, while major urban areas
in Brazil are served by one of the 71 Localiza-owned locations. The 174
Brazilian franchise locations are operated by a total of 78 franchisees.

     Non-Brazilian Operations. Our network has 64 franchise locations outside of
Brazil. We believe that the presence of franchises in non-Brazilian markets has
important value not only because they generate additional revenues, but also
because these franchises provide a benefit to customers in the core Brazilian
market when traveling abroad, and therefore enhance the overall level of service
we can provide to our customers. Today, our brand is strong in certain markets
outside Brazil, particularly in Argentina and Ecuador.

     The 64 international franchise locations are operated by 3 master
franchisees and 32 franchisees, the largest of whom owns 5 locations.

     Franchise Structure. We grant exclusivity to our franchisees for defined
geographic areas through to renewable contracts ranging from five to ten years.
Brazilian franchisees generally pay us an initial fee plus a royalty fee and an
advertising fee based on gross revenues. Non-Brazilian franchisees pay royalties
at varying rates, depending upon local market conditions. In 2003, aggregate net
royalties from Brazilian franchisees amounted to R$4.1 million, 85.2% of total
franchise royalties, and aggregate net royalties from non-Brazilian franchisees
amounted to R$0.7 million, or 14.8% of total franchise royalties. Revenues in
Argentina represented 14.6%, 9.2% and 6.6% of the total consolidated franchising
revenues in 2001, 2002 and 2003, respectively.

     We oversee the quality of our franchise operations through:

     o    rigorous qualifying procedures for new franchisees,

                                       26
<PAGE>

     o    training, comprehensive education and procedural manuals, and

     o    periodic onsite inspections.

  Competition

     The Brazilian car rental industry includes four major competitors and more
than 2,300 smaller competitors that operate primarily in non-airport locations.

     The extent to which car rental companies can capture market share depends
upon a number of factors, including pricing, customer service, brand
recognition, availability of internet access, fleet quality, convenience,
distribution of rental locations, travel agent referrals and the number of
commercial accounts.

     Although we do not focus on being the discount price leader in our markets,
we believe that based on the service we provide, our rentals are competitively
priced. We believe that our customer service, fleet quality, convenience and
location distribution are all benchmarks in the Brazilian car rental industry.
We aggressively market our services to travel agents and corporations.

     We constantly monitor our competitors aiming to review strategies if
necessary.

     Our used car sales business faces competition from a variety of small,
independent used car dealers and, to a certain degree, from new car dealers.

     Fleet Management. Total Fleet focuses on the long-term fleet rental and
management market. Total Fleet's principal competitors are on one hand the same
as ours car rental business competitors, mainly Hertz, Avis and Unidas. On the
other hand, companies engaged solely in the fleet management business, such as
Lease Plan, an operational leasing company affiliated with Volkswagen, as well
as Unidas Corporate Fleet are the competitors.

  Regulation

     We are subject to a wide range of federal, state and municipal regulations
generally applicable to companies operating in Brazil, including laws relating
to labor, social security, consumer protection and antitrust. Except for
customary business licenses required by local government authorities, no special
licenses or permits are required for us to carry on our business in Brazil.

     Any business operating in Brazil must comply with certain environmental
regulations, including standards relating to water pollution and contamination,
among others. There are no material legal or administrative proceedings pending
against us with respect to any environmental matters.

C.   Organizational Structure

     Localiza has the following four subsidiaries:

     o    Total Fleet. Total Fleet is a Brazilian corporation through which we
          conduct our fleet management business. Total Fleet started to operate
          on January 1, 1999. Under the Brazilian Corporation Law, as of May 31,
          2004, Total Fleet has 109,630,000 common shares, no par value per
          share, and a capital stock in the amount of R$123.1 million.

     o    Franchising. Franchising is a Brazilian corporation through which we
          conduct our domestic and international franchising operations. We
          acquired Franchising on May 31, 1995, and the audited financial
          statements of Localiza reflect the financial condition and results of
          operations of Franchising from the date of its acquisition. Under the
          Brazilian Corporation Law, as of May 31, 2004, Franchising has 116,254
          common shares, no par value per share, and a capital stock in the
          amount of R$116.3 thousand. At a quotaholders' meeting held on May 1,
          2003, the quotaholders of Franchising approved its transformation from
          a limited liability company into a corporation (sociedade anonima).

                                       27
<PAGE>

     o    Prime. Prime is a Brazilian corporation that deals with the
          intermediation of used car sales and related services. It started to
          operate on January 1, 1999, rendering services to Total Fleet. As of
          January 2, 2003, Prime started to provide services to Localiza. Under
          the Brazilian Corporation Law, as of May 31, 2004, Prime has 15,000
          common shares, no par value per share, and a capital stock in the
          amount of R$950.0 thousand. At a quotaholders' meeting held on May 1,
          2003, the quotaholders of Prime approved its transformation from a
          limited liability company into a corporation (sociedade anonima).

     o    MFA. MFA is an Argentine corporation that conducts our master
          franchise operations in Argentina and the other Latin American
          countries where we conduct business. On August 17, 1999, Franchising
          acquired a 60% interest in MFA from EDS Inversora S.A., for
          approximately R$337.0 thousand, thereby increasing its total ownership
          interest in MFA to 99.996%. Mr. Aristides Luciano de Azevedo Newton
          holds one share of MFA representing 0.004% of its capital stock.
          Localiza's and Franchising's consolidated audited financial statements
          reflect the financial condition and results of operations of MFA as of
          September 1, 1999. As of May 31, 2004, MFA has 25,000 common shares,
          par value ARP1.00 per share, and a capital stock in the amount of
          ARP25.0 thousand.

                   [GRAPHIC OMITTED -- Graphic describes the
               organizational structure of Localiza and its four
            subsidiaries (Total Fleet, Franchising, Prime and MFA)]

     Each of Total Fleet, Franchising, Prime and MFA is a guarantor of the
Notes.

     D.   Description of Property

     Our headquarters occupy a seven-story leased office building in Belo
Horizonte, in the state of Minas Gerais, Brazil. The following table sets forth
information regarding our car rental and used car sales locations:

                                                          As of April 30,
                                                      ------------------------
                                                      2002      2003      2004
                                                      ----      ----      ----
Car rental locations:
     On owned property................................   3         3         3
     On leased property(1)............................  66        67        69
                                                        --        --        --
         Total........................................  69        70        72
                                                        ==        ==        ==

Used car sales locations:
     On owned property................................   4         3         2
     On leased property...............................  11        12        12
                                                        --        --        --

         Total........................................  15        15        14
                                                        ==        ==        ==
-----------------------
(1)  Includes all airport locations.


                                       28
<PAGE>


     We operate our airport locations under leases with terms varying from one
to fifteen years pursuant to concession agreements with national and local
airport authorities.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.   Operating Results

  Discussion of Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated audited financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We evaluate our estimates on an ongoing basis, including
those related to areas that require a significant level of judgment or are
otherwise subject to an inherent degree of uncertainty. These areas include
allowances for doubtful accounts, depreciation of revenue-earning vehicles,
long-lived assets, deferred income taxes, reserve for contingencies, financial
instruments and stock option plan accounting. We base our estimates on
historical experience, our observance of trends in particular areas, information
and/or valuations available from outside sources and various other assumptions
that we believe to be reasonable under the circumstances and which form the
basis for making judgments about the carrying value of assets and liabilities
that may not be readily apparent from other sources. Actual amounts could differ
significantly from amounts previously estimated. We believe that our significant
accounting policies may involve a higher degree of judgment and complexity. See
note 3 to the Localiza audited financial statements.

     o    Allowance for doubtful accounts

     We maintain allowances for doubtful accounts for estimated losses from the
inability or failure of our customers to make payments for daily and fleet
rental activities, sales of vehicles and franchise fees. The allowances are
based on current trends and historical collection experience and a percentage of
our accounts receivables by aging category. In determining these percentages, we
look to historical write-offs, as well as current trends in the credit quality
of our customer base.

     o    Revenue-earning vehicles

     We must estimate what the residual values of our revenue-earning vehicles
will be at the expected time of disposal to determine monthly depreciation
rates. In determining these depreciation rates, we look at historical disposal
experience and holding periods, trends in the wholesale and retail market for
vehicles and model specific factors. Due to longer holding periods on fleet
management vehicles and the resulting increased possibility of changes in the
economic environment and market conditions, particularly as compared to car
rental vehicles, these estimates are subject to a greater degree of risk. We
continually evaluate estimated residual values. In order to reflect the higher
depreciation of the vehicles during their earlier useful lives, we adopt the
sum-of-the-years-digits method for the depreciation of vehicles, computed in a
quarterly basis. Differences between actual residual values and estimated
residual values result in a gain or loss on disposal. Vehicles held for disposal
are evaluated as a group and recorded at the lower of cost or market (less
estimated selling costs). During 2001, 2002 and 2003, we reviewed certain
projected sales prices used to compute the provision for depreciation of
revenue-earning vehicles, due to an increase in the sales price of used cars in
the Brazilian market. This resulted in changes in the estimated residual values
to be realized when the vehicle is sold. Consequently, depreciation expense
related to revenue earning vehicles for the year ended December 31, 2003
decreased approximately R$13.4 million (21.6 million in 2002 and

                                       29
<PAGE>

R$12.0 million in 2001). Future changes in our residual values will impact our
results of operations on a prospective basis. Maintenance and repair expenses
are charged to operations when incurred.

     o    Long-lived assets

     The carrying value of long-lived assets is reviewed whenever events or
changes in circumstances indicate that the carrying values may not be
recoverable through projected undiscounted future cash flows. Fair value is
calculated as the present value of estimated future cash flows excluding
interest. Factors we consider important which could trigger an impairment review
include the following:

     o    significant under-performance relative to expected, historical or
          projected future operating results;

     o    significant changes in the manner of using the assets or the strategy
          of our overall business; and

     o    significant negative industry or economic trends.

     If the projected undiscounted future cash flows exceed the carrying value
of long-lived assets, an impairment loss is recognized to adjust the cost of the
long-lived asset to its fair value. Depending on future circumstances
surrounding our long-lived assets, impairment losses recognized may impact our
future results of operations.

     o    Income taxes

     We account for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes", which requires the application of the
comprehensive liability method of accounting for income taxes. SFAS No. 109
requires recognition of deferred tax assets and liabilities for the estimated
future tax consequences of events attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit carry-forwards.

     Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under SFAS No.109, the effect on deferred tax assets and
liabilities of changes in tax rates is recognized in income for the period that
includes the enactment date.

     We record a valuation allowance to reduce our deferred tax assets to the
amount, which, we estimate, is more likely than not to be realized. While we
have considered future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize deferred tax assets in the future in
excess of the net recorded amount, the resulting adjustment to deferred tax
assets would increase income in the period in which such determination was made.
Conversely, should we determine that we would not be able to realize all or part
of our net deferred tax assets in the future, an adjustment to deferred tax
assets would decrease income in the period in which such determination was made.

     o    Reserve for contingencies

     We are a plaintiff and a defendant in a number of lawsuits, arising in the
normal course of business, in connection with tax, labor, civil and other
issues. We account for contingencies in accordance with SFAS No. 5, "Accounting
for Contingencies" and the evaluations with respect to the potential outcome of
the claims are made with the assistance of our legal and tax advisors. Such
accrued liabilities are estimated based upon historical experience and the
nature of the group of claims, relating to labor claims, and based on
information provided by internal and external legal and tax advisors.

     o    Financial instruments

     We use derivative instruments as part of our overall strategy to protect
our U.S. dollar-denominated debt against the depreciation of the real relative
to foreign currency, through swap transactions between exchange rate variation
and fixed interest rate. Effective as of January 1, 2001, we account for our
derivatives at fair value on the balance sheet in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", which was issued
in June 1998 and amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging

                                       30
<PAGE>

Activities-Deferral of the Effective Date of FASB Statement No. 133" and SFAS
No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities",
and SFAS No 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". As a result of adoption of SFAS No. 133, we recognize our
derivatives on the balance sheet at fair value and adjustments to fair value are
recorded through income under the financial expenses caption. Prior to adoption
of SFAS No. 133, we recognized our derivatives on the balance sheet at contract
value and adjustments to contract value were recorded through income under the
financial expense caption. We accounted for the accounting change as a
cumulative effect of an accounting principle. The adoption of SFAS No. 133
resulted in a cumulative effect of accounting change of R$907.0 thousand, net of
applicable tax expense of R$467.0 thousand, recorded as an expense in the
consolidated statement of income for the year ended December 31, 2001. Our
derivatives and other financial instruments are not publicly traded on an
organized exchange. In the absence of quoted market miles, we must develop an
estimate of fair value using the present value of future cash flows, which may
involve significant judgments and estimates. These estimates are based on
valuation methodologies deemed appropriate in the circumstances; however, the
use of different assumptions may have a material effect on the estimated fair
value amounts recorded in the financial statements. We have determined the
estimated fair value amounts by using available market information and valuation
methodologies described above. However, considerable judgment is required in
evaluating market data to develop the estimates of fair value. Accordingly,
these estimates may not be indicative of the amounts that we could settle in a
current market exchange. The use of different market assumptions (such as
interest rate, exchange rate or other) or valuation methodologies may have a
material effect on the estimated fair value amounts.

     o    Stock option plan accounting

     As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation", we
elected to continue to account for our stock option plan using the intrinsic
value based method for variable stock plans as prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees". Under the intrinsic value method, cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. Entities choosing to
continue applying APB Opinion No. 25 on employee stock options granted on or
after January 1996 must provide pro-forma disclosures of net income, as if the
fair value method of accounting has been applied. Under this method cost is
measured at the grant date based on the fair value of the employee stock option
and is recognized ratably over the service period of the option, which is
usually the vesting period. To determine the fair value of the Localiza shares,
the stock options and consequently compensation expense, if any, we are required
to make significant judgments and estimates in the absence of quoted market
prices. These estimates are based on valuation methodologies deemed appropriate
under the circumstances, such as "Black & Scholes" model; however, the use of
different assumptions may have a material effect on the estimated fair value
amounts and in the compensation expense. For all periods presented, fair value
of the Localiza shares did not exceed the exercise (strike) prices of the
options and consequently, no compensation expense was recorded. Additionally,
the pro forma disclosures required by SFAS No. 123 have not been presented as
the effect of measuring compensation expense under SFAS No. 123 was immaterial
for all periods presented.

  New Accounting Pronouncements

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. Under
SFAS No. 143, the liability for an asset retirement obligation is discounted and
accretion expense is recognized using the credit-adjusted risk-free interest
rate in effect when the liability was initially recognized. In addition,
disclosure requirements contained in SFAS No. 143 will provide more information
about asset retirement obligations. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002 with earlier
application encouraged. Since the Company does have any legal asset retirement
obligations pursuant to the respective concession contracts, the adoption of
this standard as of January 1, 2003 did not have any impact on the Company's
financial statements.

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections". SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", which required that all gains and losses from
extinguishment of debt to be aggregated and classified as an extraordinary item
if material. SFAS No. 145 requires that gains and losses from

                                       31
<PAGE>

extinguishment of debt be classified as extraordinary only if they meet criteria
in APB 30, thus distinguishing transactions that are part of recurring
operations from those that are unusual or infrequent, or that meet the criteria
for classification as an extraordinary item. SFAS No. 145 amends SFAS No. 13,
"Accounting for Leases", to require that lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. In addition, SFAS No. 145 rescinds SFAS
No. 44, "Accounting for Intangible Assets of Motor Carriers", and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements", which are
not currently applicable to the Company. The provisions of SFAS No. 145 as they
relate to the rescission of SFAS No. 4 shall be applied in fiscal year 2003.
Certain provisions related to SFAS No. 13 are effective for transactions
occurring after May 15, 2002. The adoption of this statement did not have an
impact on the Company's financial statements.

     In June 2002, FASB issued SFAS No. 146 "Accounting for costs associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". The principal difference
between this Statement and EITF 94-3 relates to its requirements for recognition
of a liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF 94-3,
a liability for an exit cost was recognized at the date of an entity's
commitment to an exit plan. A fundamental conclusion reached by the Board in
this Statement is that an entity's commitment to a plan, by itself, does not
create a present obligation to others that meets the definition of a liability.
This Statement also establishes that fair value is the objective for initial
measurement of the liability. This Statement improves financial reporting by
requiring that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The accounting for similar events and circumstances will
be the same, thereby improving the comparability and representational
faithfulness of reported financial information. The provisions of this Statement
are effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. During 2003, the Company did not
have any exit or disposal activities and consequently, this statement did not
have an impact on the Company's financial statements during the year ended
December 31, 2003.

     In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
modifies the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The Statement requires that those
instruments be classified as liabilities in statements of financial position.
SFAS No. 150 affects an issuer's accounting for three types of freestanding
financial instruments, namely:

     1. Mandatory redeemable shares, which the issuing company is obligated to
buy back in exchange for cash or other assets.

     2. Instruments, other than outstanding shares, that do or may require the
issuer to buy back some of its shares in exchange for cash or other assets.
These instruments include put options and forward purchase contracts.

     3. Obligations that can be settled with shares, the monetary value of which
is fixed, tied solely or predominantly to a variable such as a market index, or
varies inversely with the value of the issuers' shares.

     SFAS No. 150 does not apply to features embedded in financial instruments
that are not derivatives in their entirety. In addition to its requirements for
the classification and measurement of financial instruments within its scope,
SFAS No. 150 also requires disclosures about alternative ways of settling those
instruments and the capital structure of entities, all of whose shares are
mandatorily redeemable. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The adoption of this statement did not have an impact on the Company's financial
statements for the year ended December 31, 2003.

                                       32
<PAGE>

     In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN 45 are effective for interim and
annual periods ending after December 15, 2002. The initial recognition and
initial measurement requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002. The adoption of this
statement did not have an impact on the Company's financial statements for the
year ended in December 31, 2003.

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation 46 "Consolidation of Variable Interest Entities, an
interpretation of ARB 51" which provided a new framework for identifying
variable interest entities (VIEs) and determining when a company should include
the assets, liabilities, non-controlling interests and results of activities of
a VIE in consolidated financial statement. FIN 46 was effective immediately for
VIEs created after January 31, 2003 and to VIES in which an enterprise obtained
a variable interest after that date. For variable interests in VIES created
before February 1, 2003, FIN 46 applied to public enterprises no later than the
beginning of the first interim or annual period beginning after June 15, 2003.

     On October 9, 2003 the FASB decided to defer the implementation date of FIN
46 to the fourth quarter instead of the third quarter. Pursuant to this
deferral, public companies in the United States of America had to complete their
evaluations of variable interest entities that existed prior to February 1,
2003, and the consolidation of those for which they are the primary beneficiary
for financial statements issued for the first period ending after December 15,
2003. For calendar year companies, consolidation of previously existing variable
interest entities was required in their December 31, 2003 financial statements.
This deferral did not affect the implementation date for many foreign private
issuers, which continued to be the beginning of the first annual period ending
after December 15, 2003.

     In December 2003 FIN 46 was substantially revised and a new interpretation
FIN 46 (revised) was issued. The key differences between FIN 46 (revised) and
its predecessor FIN 46 include:

     1. FIN 46R now scopes out many - but not all - businesses, as that term is
defined in the Interpretation. A business - assuming it is scoped out of FIN 46R
- should be consolidated with its accounting parent (if it has one) only when
required by longstanding, conventional consolidation guidance, most notably
Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51).
Under FIN 46, any business potentially could have been a VIE (and, if so,
subject to the Interpretation's unique consolidation requirements) depending on
the design of the business' capital structure and other factors. Note that an
entity whose primary activity is asset-backed financing or who acts as a
single-lessee leasing entity cannot qualify for the scope exemption in FIN 46R,
even if it would otherwise be a business. If such an entity is a VIE, it is
covered by FIN 46R's consolidation requirements.

     2. FASB partially delayed FIN 46's effective date (for most public
companies until no later than the end of the first reporting period ending after
March 15, 2004. The delay notwithstanding, public companies must apply either
FIN 46 or FIN 46R to special-purpose entities (SPEs) no later than the end of
the first reporting period ending after December 15, 2003. For many foreign
private issuers the effective date continues to be the beginning of the first
annual period ending after December 15, 2003. For SPEs created by foreign
private issuers after February 1, 2003, however, the effective date is no later
than the end of the first reporting period ending after December 15, 2003.

     Based on an initial assessment of the provisions and requirements of FIN
46R, the Company believes that the implementation of this statement will not
result in any impact to the Company's consolidated financial statements.

  Overview

     We are engaged in the business of car rental, fleet management, used car
sales and franchising.

     Our revenues consist primarily of:

     o    Car rental: revenues generated from renting cars to customers
          including revenue from loss or collision damage waivers.

                                       33
<PAGE>

     o    Fleet management: revenues generated from renting vehicles to
          customers including revenue from fleet management services.

     o    Used car sales: revenue generated from the sale of used cars including
          commission on intermediation of service sales.

     o    Franchising: initial fees, royalties and other fees generated from our
          franchisees.

     Our costs and expenses consist primarily of:

     o    Direct operating costs: includes wages and related benefits, rent and
          concessions paid to airport authorities, costs relating to the
          operation net of third parties reimbursements and cost of used car
          sales.

     o    Selling, general and administrative expenses: includes reservation,
          advertising, marketing, commissions to sellers, travel agents and
          other third parties and other related expenses.

     o    Depreciation of vehicles: depreciation expenses relating to
          revenue-earning vehicles.

     o    Financial expense, net: includes interest income and expense, taxes on
          financial revenues, net monetary variation and exchange loss and other
          gains/losses.

     o    Non-vehicle depreciation, goodwill amortization and non-operating
          result: includes depreciation of capitalized assets and amortization
          of goodwill, as well as non-operating results.

     o    Other expenses, net: taxes, extraordinary gain - net and cumulative
          effect of a change in accounting principle - net, if applicable.

     Our profitability is primarily a function of the volume and pricing of
rental transactions and the utilization of cars and equipment. Significant
changes in the purchase price of cars and equipment or interest rates can also
have a significant effect on our profitability depending on our ability to
adjust pricing for these changes. Our business requires significant capital
expenditures for cars and equipment and consequently substantial liquidity to
finance such expenditures.

     In the discussion that follows, total net revenues less direct operating
costs, costs of used car sales and taxes on revenues is referred to as "adjusted
gross profit". Adjusted gross profit should not be considered as an alternative
to operating income or net income or as an indicator of our performance, and may
not be comparable to other similarly titled measures of other companies.
However, we believe that adjusted gross profit is an useful indicator of our
performance for purposes of management analysis. The table below includes a
reconciliation of adjusted gross profit to operating income for the three years
ended December 31, 2003. You should read this information together with
Localiza's audited financial statements that are included elsewhere in this
annual report.

                                       34
<PAGE>

<TABLE>

                                                                         Year Ended December 31,
                                                                ----------------------------------------
                                                                     2001         2002          2003
                                                                     ----         ----          ----
                                                                          (in thousands of reais)
<S>                                                                   <C>           <C>          <C>
Net revenues:
   Car rental...............................................       R$ 144,253    R$ 162,595   R$ 155,291
   Fleet management.........................................          120,229       118,782      120,309
   Franchising..............................................            5,056         5,111        5,456
   Used car sales...........................................          150,907       190,476      250,978
                                                                      -------       -------      -------
      Total net revenues....................................          420,445       476,964      532,034
                                                                      -------       -------      -------

Direct operating costs:
   Direct operating.........................................          (77,059)      (88,858)     (91,485)
   Cost of used car sales...................................         (118,655)     (156,270)    (206,579)
   Taxes on revenues........................................          (17,795)      (19,578)     (16,337)
                                                                      -------       -------      -------
      Total direct operating costs..........................         (213,509)     (264,706)    (314,401)
                                                                      -------       -------      -------

Adjusted gross profit.......................................          206,936       212,258      217,633
                                                                      -------       -------      -------

Expenses:
   Selling, general, administrative and other expenses......          (52,438)      (62,482)     (65,402)
   Depreciation of vehicles.................................          (43,995)      (31,062)     (37,222)
   Goodwill amortization....................................           (1,499)           --           --
   Other depreciation and amortization......................           (2,634)       (3,426)      (3,841)
                                                                      -------        ------      -------
      Total expenses........................................         (100,566)      (96,970)    (106,465)
                                                                      -------        ------      -------

Total operating expenses and costs..........................         (314,075)     (361,676)    (420,866)
                                                                      -------       -------      -------

Operating income............................................          106,370       115,288      111,168

Financial (expenses) income, net............................          (50,464)      (82,814)      40,677
Other nonoperating (expenses) income, net...................            4,475          (125)          97
Total income tax and social contribution....................          (16,493)       (5,585)     (46,196)
Cumulative effect of a change in accounting principles
   and minority interest....................................             (907)         (115)        (106)
                                                                      -------       -------      -------
Net income..................................................           42,981        26,649      105,640
                                                                      =======       =======      =======

------------------------
</TABLE>

     The table below sets forth certain data as a percentage of net revenues for
the periods indicated.

<TABLE>
                                                                         Year Ended December 31,
                                                                    -----------------------------------
                                                                       2001          2002         2003
                                                                       ----          ----         ----
                                                                                (percent)
<S>                                                                    <C>           <C>           <C>
Car rental..................................................           34.3%         34.1%        29.2%
Fleet management............................................           28.6          24.9         22.6
   Total vehicle rental.....................................           62.9          59.0         51.8
Franchising.................................................            1.2           1.1          1.0
Used car sales..............................................           35.9          39.9         47.2
   Total net revenues.......................................          100.0         100.0        100.0
Direct operating costs......................................          (50.8)        (55.5)       (59.1)
Adjusted gross margin.......................................           49.2          44.5         40.9
Advertising, promotion and selling expenses.................           (9.6)        (10.2)        (9.2)
General, administrative and other expenses..................           (2.9)         (2.9)        (3.0)
Depreciation of vehicles....................................          (10.5)         (6.5)        (7.0)

                                       35
<PAGE>
                                                                         Year Ended December 31,
                                                                    -----------------------------------
                                                                       2001          2002         2003
                                                                       ----          ----         ----
                                                                                 (percent)
Other depreciation and amortization (Including goodwill
   amortization)                                                       (1.0)         (0.7)        (0.7)
Operating income............................................           25.2          24.2         21.0
Financial expense, net......................................          (12.0)        (17.4)         7.6
Non-operating result........................................            1.1            --           --
Income before taxes, minority interest, extraordinary gain
   and cumulative effect of a change in accounting principle           14.3           6.8         28.6
Taxes, minority interest, extraordinary gain and cumulative
   effect of a change in accounting principle..................        (4.1)         (1.2)        (8.7)
Net income..................................................           10.2           5.6         19.9
</TABLE>

  Year ended December 31, 2003 Compared to Year ended December 31, 2002

o    Net Revenues

     Our net revenues increased by 11.5% to R$532.0 million in 2003 from R$477.0
million in 2002. This increase was primarily attributable to an increase in the
volume and prices of used cars sold.

     Car rental revenues, which include replacement, leisure and corporate
short-term rental and monthly rental markets, decreased 4.5% to R$155.3 million
in 2003 from R$162.6 million in 2002. This decrease was attributable to a
reduction of 16.9% in the volume of daily rentals, offset by an increase of
14.9% in the average rates. The decrease in volume was mainly due to: (i) the
decrease in the level of economic activity in Brazil in 2003 (ii) the
renegotiations of commercial agreements increasing rates with the collateral
effect of volume decrease.

     Fleet management revenues, which correspond to the corporate long-term
rental market, increased by 1.3% to R$120.3 million in 2003 from R$118.8 million
in 2002. This increase was attributable to an increase of 22.5% in average
rates, which was partially offset by a 16.3% decrease in the volume of rented
cars. The rate increase was due to: (i) the rate adjustment in the agreements,
(ii) the entrance of new customers with higher average rates and (iii) the
termination of a large customer with lower rates, resulting in a decrease in the
volume of rented cars.

     Used car sales revenues increased by 31.8% to R$251.0 million in 2003 from
R$190.5 million in 2002 due to an increase of 16.0% in the volume of used cars
sold (15,468 cars in 2003 and 13,331 cars in 2002), as consequence of a
particular change in the renewal policy for car rental division for year 2003
reducing the age from 12 months to 6-8 months and to an increase of 13.8% in the
average prices. The renewal policy for 2003 was changed aiming to take advantage
market opportunities.

     Franchising revenues increased by 6.8% to R$5.5 million in 2003 from R$5.1
in 2002.

o    Direct Operating Costs

     Direct operating costs increased by 18.8% to R$314.4 million in 2003 from
R$264.7 million in 2002. As a percentage of net revenues, direct operating costs
increased to 59.1% in 2003 from 55.5% in 2002. This increase was mainly due to
the increase in the car rental division costs compared to its revenues decrease.

     Car rental direct operating costs include maintenance, casualty (accidents
and theft), car preparation expenses (title, licensing and others), car
transportation, operating personnel and location-related costs. These costs
increased by 7.0% to R$58.3 million in 2003 from R$54.5 million in 2002. As a
percentage of car rental net revenues, these costs increased to 37.6% in 2003
from 33.5% in 2002. The increase in direct costs was due to: (i) an increase in
maintenance administration costs in the amount of R$3.6 million and (ii) a
reduction of R$2.3 million in accident repair costs recoveries which are
recorded as a decrease in operating costs, reflecting mainly the fact that in,
2002, one of our largest customers terminated its contract with us, returning
most of the cars. The cars required significant

                                       36
<PAGE>

maintenance, fully reimbursed. These increases were partially offset by an
increase of R$1.2 million in recuperation in reimbursable costs, mainly traffic
fines, and a decrease of R$0.8 million in car transportation costs.

      Fleet management direct operating costs (which are comparable to car
rental costs but do not include costs associated with locations) decreased by
3.9% to R$30.5 million in 2003 from R$31.7 million in 2002. As a percentage of
fleet management net revenues, these costs decreased to 25.3% in 2003 from 26.7%
in 2002. This was principally due to the decrease in variable costs,
specifically the increase of R$2.6 million in recoveries that was partially
offset by the decrease of R$0.7 million in reimbursable costs.

     Franchising direct operating costs remained stable at approximately R$2.6
million in 2003 and 2002.

     Costs of used car sales consist of the depreciated book value of cars sold
at the time of resale, net of the technical discount cost. The technical
discount cost is an amount recorded into either the car rental or fleet
management direct operating costs, as applicable, equivalent to the discount
given to the buyer when the car being sold is damaged or in need of repair. The
total residual value of cars sold by the used car sales division increased by
32.2% to R$206.6 million in 2003 from R$156.3 million in 2002 as a result of the
increase in the number of cars sold. As a percentage of used car sales revenues,
the book value of cars sold by the used car sales division remained stable at
approximately 82%.

o    Adjusted Gross Profit

     Adjusted gross profit increased by 2.5% to R$217.6 million in 2003
(equivalent to 40.9% of net revenues) from R$212.3 million in 2002 (equivalent
to 44.5% of net revenues). As a percentage of net revenues, adjusted gross
profits decreased principally due to the reduction in the car rental division
margin.

o    Advertising, Promotion and Selling Expenses

     Advertising, promotion and selling expenses, which include sales force
related expenses, reservation center costs, advertising and provision for
doubtful accounts, increased by 1.3% to R$49.4 million in 2003 from R$48.8
million in 2002, mainly due to (i) new used car sales locations in replacement
of shared-car rental locations; (ii) advertising expenses; and (iii) personnel
expenses. These increases were lower than the increase in revenues. As a
percentage of net revenues, advertising, promotion and selling expenses
decreased to 9.3% in 2003 from 10.2% in 2002.

o    General, Administrative and Other Expenses

     General, administrative and other expenses increased by 16,8% to R$15.9
million in 2003 from R$13.7 million in 2002. This increase was due to the
increase in compensation paid to some officers. As a percentage of net revenues,
general, administrative and other expenses remained stable at around 2.9%.

o    Depreciation of Vehicles

     Vehicle depreciation is calculated based on rates intended to measure the
reduction necessary to approximate a vehicle's market value (determined by
manufacturer, model and acquisition date) at the end of the estimated average
holding period of a vehicle and includes the expenses associated with selling
vehicles. In order to match the increase in maintenance costs with car
utilization and to reflect the initially higher depreciation of vehicles just
after their purchase, we depreciate our fleet using the sum-of-the-years-digits
method calculated on a quarterly basis. Depreciation expense increased by 19.8%
to R$37.2 million in 2003 from R$31.1 million in 2002. On a per car basis,
annual depreciation expense increased by 35.6% to R$2,156 in 2003 from R$1,590
in 2002. This increase is a consequence of the prices in the used cars sales
market that resulted in higher prices in 2002, reflected in lower depreciation
rates.

o    Financial Expense, Net

     Net financial expense decreased by 149.1% to a revenue of R$40.7 million in
2003 from a expense of R$82.8 million in 2002 principally due to:

                                       37
<PAGE>

     (i)  gain of R$46.9 million resulting in a decrease of 155.1% in the net
          monetary variation and exchange gains (losses), due to the
          appreciation of 18.2% of the real against the U.S. dollar in 2003,
          (compared to an 52.3% of the depreciation in 2002 resulting in an
          exchange loss of R$85.0 million);

     (ii) an unrealized loss on derivative transactions, in particular swap
          transactions from a gain of R$14.2 million in 2002 to a loss of R$7.0
          million in 2003, was due to the appreciation of 18.2% of the real
          against the U.S. dollar in 2003 and an increase in the CDI interest
          rate (Interbank Deposit Certificate) from an average of 19.1% in 2002
          to 23.3% in 2003. This effect was partially mitigated by a decrease in
          the cupom rate of 3.3 p.p. to 16.7% in 2003 from 20.0% in 2002.
          This rate is used to adjust the swap transactions to their present
          value; and

    (iii) A 107.8% increase in interest income due to the increase in the
          volume of cash equivalents and the raise in the interest rate CDI
          (Interbank Deposit Certificate) from an average of 19.09% in 2002 to
          23.28% in 2003.

o    Taxes, Minority Interest, and Cumulative Effect of a Change in Accounting
     Principle

     Our income tax increased by 727.1% to R$46.1 million in 2003, representing
an effective tax rate of 30.4%, from R$5.6 million in 2002, representing an
effective tax rate of 17.3%. See note 19 to the consolidated financial
statements.

o    Net Income

As a result of the factors discussed above, net income increased by 296.4% to
R$105.6 million in 2003 from R$26.7 million in 2002.

  Year ended December 31, 2002 Compared to Year ended December 31, 2001

o    Net Revenues

     Our net revenues increased by 13.4% to R$477.0 million in 2002 from R$420.4
million in 2001. This increase was primarily attributable to an increase in the
volume of used cars sold and in the average prices of car rentals.

     Car rental revenues, which include replacement, leisure and corporate
short-term rental and monthly rental markets, increased 12.7% to R$162.6 million
in 2002 from R$144.3 million in 2001. This increase was attributable to a 3.7%
increase in volume and an 8.7% increase in average prices.

     Average prices have increased due to: (i) the termination in 2001 of a
significant contract with lower prices in the monthly rental business; and (ii)
a price adjustment negotiated with insurance companies during 2002 in the
replacement business.

     Fleet management revenues, which correspond to the corporate long-term
rental market, decreased by 1.2% to R$118.8 million in 2002 from R$120.2 million
in 2001. Although there was an increase of 2.6% in average prices, the volume
decreased 4.5% for the year 2002. This decrease in volume was mainly due to (i)
a decrease in the level of economic activity in Brazil in 2002, (ii) the entry
of new fleet management competitors with low-price strategies, which led some of
our customers to leave us, and (iii) a decrease in demand for our fleet
management services for 2002 by one of our large customers, which had
temporarily increased its usage of our fleet management services during 2001.

     Used car sales revenues increased by 26.2% to R$190.5 million in 2002 from
R$150.9 million in 2001 due to an increase by 27.8% in the volume of used cars
sold to 13,331 cars in 2002 from 10,430 cars in 2001. This increase was
principally due to: (i) higher sale of cars in the car rental business during
its regular and periodic renewal of fleet and (ii) higher sale of cars from
fleet management business as a consequence of the reduction in our fleet.

     Franchising revenues remained stable at R$5.1 million in 2002 and 2001.

                                       38
<PAGE>

o    Direct Operating Costs

     Direct operating costs increased by 24.0% to R$264.7 million in 2002 from
R$213.5 million in 2001. As a percentage of net revenues, direct operating costs
increased to 55.5% in 2002 from 50.8% in 2001. This increase was mainly due to
an increase in the volume of used cars sold combined with an increase in the
average cost of vehicles sold.

     Car rental direct operating costs include maintenance, casualty (accidents
and theft), car preparation expenses (title, licensing and others), car
transportation, operating personnel and location-related costs. These costs
increased by 19.9% to R$54.5 million in 2002 from R$45.5 million in 2001. As a
percentage of car rental net revenues, these costs increased to 33.5% in 2002
from 31.5% in 2001. The increase in direct costs was due to an increase of R$4.7
million in fixed costs, in particular with customer service personnel costs,
driving services and fixed airport leases. In addition, expenses with
contingencies increased R$1.7 million between 2002 and 2001.

     Fleet management direct operating costs (which are comparable to car rental
costs but do not include costs associated with locations) increased by 12.4% to
R$31.7 million in 2002 from R$28.2 million in 2001. As a percentage of fleet
management net revenues, these costs increased to 26.7% in 2002 from 23.5% in
2001. This was principally due to an increase in variable costs, specifically
(i) accident repair costs in the amount of R $1.4 million, and (ii) car
preparation costs, which are maintenance costs to prepare cars for sale, in the
amount of R$0.9 million. These costs increased as a result of an increase in
volume of cars sold due to a reduction in our fleet size as result of the
termination of contracts by customers who left us for new fleet management
competitors that charged lower prices and because of the reduction in the fleet
size of one of our large customers, which had temporarily increased its usage of
our fleet management services during 2001.

     Franchising direct operating costs include operating personnel and
location-related costs. These costs decreased by 22.7% to R$2.6 million in 2002
from R$3.4 million in 2001. As a percentage of franchising revenues, these costs
decreased to 51.1% in 2002 from 66.8% in 2001, mainly due to a reduction of
R$0.7 million in the contingency expenses recorded in 2002, principally as a
result of the recording of a R$0.3 million gain from the settlement of a
liability under an amnesty program in 2002.

     Costs of used car sales consist of the depreciated book value of cars sold
at the time of resale, net of the technical discount cost. The technical
discount cost is an amount recorded into either the car rental or fleet
management direct operating costs, as applicable, equivalent to the discount
given to the buyer when the car being sold is damaged or in need of repair. The
total residual value of cars sold by the used car sales division increased by
31.7% to R$156.3 million in 2002 from R$118.7 million in 2001. As a percentage
of used car sales revenues, the book value of cars sold by the used car sales
division was 82.0% in 2002 and 78.6% in 2001. This increase resulted from a
reduction in the average depreciation rates in 2002.

o    Adjusted Gross Profit

     Adjusted gross profit increased by 2.6% to R$212.3 million in 2002
(equivalent to 44.5% of net revenues) from R$206.9 million in 2001 (equivalent
to 49.2% of net revenues). As a percentage of net revenues, adjusted gross
profits decreased principally due to a decrease in the used car sales margin.

o    Advertising, Promotion and Selling Expenses

     Advertising, promotion and selling expenses, which include sales force
related expenses, reservation center costs, advertising and provision for
doubtful accounts, increased by 21.1% to R$48.8 million in 2002 from R$40.3
million in 2001 in line with the increase in net revenues. As a percentage of
net revenues, advertising, promotion and selling expenses increased to 10.2% in
2002 from 9.6% in 2001, mainly due to the restyling of approximately 6 car sales
locations, which included infrastructure (building and furniture) and new visual
merchandising expenses in the amount R$1.8 million.

                                       39
<PAGE>

o    General, Administrative and Other Expenses

     General, administrative and other expenses increased by 12.7% to R$13.7
million in 2002 from R$12.1 million in 2001. This increase was due to an
increase in other expenses, principally due to the recording of provisions for
tax contingencies in the amount of R$1.8 million. As a percentage of net
revenues, general, administrative and other expenses remained stable at around
2.9%.

o    Depreciation of Vehicles

     Vehicle depreciation is calculated based on rates intended to measure the
reduction necessary to approximate a vehicle's market value (determined by
manufacturer, model and acquisition date) at the end of the estimated average
holding period of a vehicle and includes the expenses associated with selling
vehicles. In order to match the increase in maintenance costs with car
utilization and to reflect the initially higher depreciation of vehicles just
after their purchase, we depreciate our fleet using the sum-of-the-years-digits
method calculated on a quarterly basis. Depreciation expense decreased by 29.4%
to R$31.1 million in 2002 from R$44.0 million in 2001. On a per car basis,
annual depreciation expense decreased by 31.1% to R$1,590 in 2002 from R$2,307
in 2001. This decrease is attributable to revisions made during 2002 that
reduced the average depreciation rates. These revisions were made to adjust
estimated future sales prices and the consequent depreciation rate to the
current car market trends, since car prices increased on average by 15.2% in
2002. As a consequence, the cost of used car sales increased.

o    Financial Expense, Net

     Net financial expense increased by 64.1% to R$82.8 million in 2002 from
R$50.5 million in 2001 principally due to the net effect of:

               (i) a 190.0% increase in the net variation and exchange loss, due
               to the 52.3% depreciation of the real against the U.S. dollar in
               2002, resulting in an exchange loss of R$85.0 million (compared
               to an 18.7% devaluation in 2001 resulting in an exchange loss of
               R$29.3 million);

               (ii) an unrealized gain on derivative transactions, in particular
               swap operations resulting from a loss of R$26.2 million in 2001
               to a gain of R$14.2 million in 2002 mainly as a result of the
               2002 depreciation of the real against the U.S. dollar;

               (iii) a 90.0% decrease on gains on sales of marketable securities
               to R$1.6 million in 2002, from R$15.7 million in 2001 due to a
               decrease in volume of securities sold; and

               (iv) a 71.9% decrease on realized gain on derivative transactions
               to R$1.9 million in 2002, related to swaps in Compror and Federal
               Treasury bonds operations, from R$6.7 million in 2001, related to
               a call option operation.

o    Taxes, Minority Interest, and Cumulative Effect of a Change in Accounting
     Principle

     Our income tax decreased by 66.1% to R$5.6 million in 2002, representing an
effective tax rate of 17.3%, from R$16.5 million in 2001, representing an
effective tax rate of 27.3%. In addition to the tax expenses, an expense of
R$0.9 million, relating to a cumulative effect of a change in accounting
principle was recorded in 2001.

o    Net Income

    As a result of the factors discussed above, net income decreased by 38.0% to
R$26.7 million in 2002 from R$43.0 million in 2001.

B.   Liquidity and Capital Resources

     We use funds primarily for (i) the acquisition of new vehicles for our
rental fleet, (ii) payment of debt service and (iii) working capital.

                                       40
<PAGE>

     Our primary sources of funds are cash generated from operations and from
the proceeds from the issuance of the Notes. We invested part of the proceeds
from the Notes in cash equivalents. The material terms of the Notes are
described below. For our short-term cash flow needs, we use the "Compror"
facility, which is also described below. In addition, we are able to obtain
funds from a revolving credit facility we have entered into with certain
Brazilian banks, up to a limit of R$16.3 million. Currently, we are not using
funds from this facility.

     Net cash from operating activities increased to R$132.6 million in 2003
from R$83.4 million in 2002, due to an increase in accounts payable reflecting
the acquisition of approximately 4.000 cars in the end of 2003, equivalent to
R$70.3 million.

     Net cash from investing activities increased by 200% to R$4.5 million from
R$1.5 million in 2002, mainly due to the fact that we did not purchase
marketable securities in 2003 as we did in 2002.

o    Debt Facility - "Compror"

     We use a special type of short-term financing, known as Compror. Under the
Compror facility, the banks transfer the proceeds from the financing directly to
our suppliers. We repay the banks with funds provided by our operating cash
flows. The Compror is used as an instrument of cash flow management. The Compror
was borrowed in U.S. dollars plus an annual market average positive spread of
5.5% in 2003. To avoid foreign exchange risk, this operation was automatically
changed to a local interest basis, the interbank rate, known as CDI, plus an
annual market spread of 1.7% in 2003, through a swap transaction as described in
note 18 to the Localiza audited financial statements.

     As of December 31, 2002, we did not have any outstanding debt under the
Compror facility.

o    The Notes

     On October 1, 1997, we obtained resources of US$100 million from the 10.25%
senior notes program, which were sold at 100% of face value. The Notes are
unsecured obligations and will mature on October 1, 2005. Interest on the Notes
is payable semi-annually on April 1 and October 1. The Notes are redeemable at
our option, in whole or in part, on or after October 1, 2001. In 1998 and 1999,
we repurchased part of the Notes corresponding to the principal amount of
US$26.1 million corresponding to R$75.4 million on December 31, 2003.

     We are subject to certain restrictions contained in the indenture entered
into in connection with the issuance of the Notes. These restrictive covenants
limit, except in restricted circumstances, our ability to, among other things,
declare any dividend or other similar distribution, make certain stock
repurchases, make certain payments on subordinated indebtedness or make certain
investments if, after giving effect to such actions, (i) a default or event of
default under the indenture would have occurred and be continuing, (ii) Localiza
would be unable to incur additional indebtedness under the debt incurrence ratio
test set forth in the indenture or (iii) the amount of all such payments exceeds
an aggregate threshold amount. A default or event of default includes our
failure to observe or perform any covenant. Covenants include limitations on our
ability to (i) incur certain additional indebtedness, (ii) create certain liens,
(iii) enter into certain transactions with affiliates, (iv) engage in certain
sale and leaseback transactions and (v) enter into certain merger, acquisition
or sale transactions.

     Our management believes we are in compliance with all the covenants
contained in the Indenture.

o    Contractual Obligations and Commercial Commitments

The table below sets forth the principal cash flows of the Notes and other
obligations by expected maturity date:


                                       41
<PAGE>

<TABLE>
                                                                                     2007 and     Repurchased
                                     Rate      Currency    2004    2005      2006      after        portion       Total
                                     ----      --------    ----    ----      ----    --------     -----------     -----
                                                                  (in millions of reais)
<S>                                    <C>         <C>       <C>   <C>         <C>       <C>          <C>           <C>
Contractual Obligations:
Notes (principal).............         10.25%    US$          -   288.9         -          -          75.4         213.5
Swap transactions(1)..........          -        US$          -    19.1         -          -            -           19.1
Lease commitments.............          -         R$        8.7     4.8       3.2        9.2            -           25.9
                                                           -------------------------------------------------------------
Total.........................                              8.7   312.8       3.2        9.2         75.4          258.5
                                                           =============================================================
(1)  See note 18 to the Localiza audited financial statements.
</TABLE>

C.   Research and Development, Patents and Licenses

     Not applicable.

D.   Trend Information

     We have four principal businesses:

     o    car rental,

     o    fleet management,

     o    used car sales, and

     o    franchising.

     Fleet management is the business that is least affected by the short-term
fluctuations in the Brazilian economy due to the fact that contracts in the
fleet management business have terms of 2 to 3 years. There is, however, a
direct correlation between the fluctuations in the Brazilian market and the
economic activity of our car rental, used car sales and franchising lines of
business. Events such as inflation, increase in interest rates, and currency
devaluation can greatly impact the results of operations of these lines of
business.

     We expect that vehicle rentals, and more specifically the car rental
segment, will grow in 2004, primarily due to expectations of an increased level
of economic activity due to general economic recovery in 2004, paralleled by
expectations of a moderate fall in internal interest rates.

     We expect only limited growth in the fleet management segment where the
environment is marked by significant price competition with customers
continually seeking to reduce their costs.

     E.   Off-Balance Sheet Arrangements

     We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. In addition, we do not have any undisclosed borrowings, and we
have not entered into any derivative contracts (other than those described in
"--Qualitative and Quantitative Disclosure About Market Risk--Swap
Transactions") or synthetic leases. We are, therefore, not materially exposed to
any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.

     F.   Tabular Disclosure of Contractual Obligations

       The Company's contractual financial liabilities and their expected
maturities at December 31, 2003 are summarized in the following table:

                                       42
<PAGE>

<TABLE>
                                                                            Payment Due by Period
                                                       Up to 3      Between 3     Between 1     Between 3     Beyond 5
Contractual Obligations                     Total      months     and 12 months  and 3 years   and 5 years      years
-----------------------                     -----      ------     -------------  -----------   -----------    --------
                                                                            (in millions of reais)
<S>                                           <C>       <C>           <C>           <C>           <C>           <C>
Short Term and Long-Term Debt                218.9       -            5.4          213.5           -             -
   Obligations(1)
Capital (Finance) Lease Obligations(2)        25.9      2.2            6.5           8.0          3.9           5.3
                                             -----      ---           ----         -----          ---           ---
Total Contractual Obligations                244.8      2.2           11.9         221.5          3.9           5.3
-----------------------------                -----      ---           ----         -----          ---           ---
(1)  See note 14 to the Localiza audited financial statements
(2)  See Note 24 to the Localiza audited financial statements
</TABLE>


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   Directors and Senior Management

  Localiza

     Localiza is a sociedade anonima, which is the corporate form most similar
to a corporation and is subject to the Brazilian Corporation Law. Localiza is
managed by its board of directors, or conselho de administracao, which currently
consists of nine members, and its executive committee, or diretoria executiva,
which currently consists of four members.

     Board of Directors

     As of May 31, 2004, the board of directors was composed of the individuals
named below.

<TABLE>
                                                                                                         Expiration
                                                                                                         of Current
                       Name                             Age              Position         Member Since      Term
----------------------------------------------  --------------  ----------------------- ---------------  ----------
<S>                                                      <C>               <C>                <C>           <C>
Jose Salim Mattar Junior.......................          55       chairman of the board       1995          2005
Antonio Claudio Brandao Resende................          57               member              1995          2005
Eugenio Pacelli Mattar.........................          51               member              1995          2005
Antonio Fernando de Campos.....................          51               member              2002          2005
Aristides Luciano de Azevedo Newton............          59               member              1995          2005
Tarcisio Pinto Ferreira........................          69               member              1996          2005
Messias da Silva Junior........................          64               member              1996          2005
Stefano Bonfiglio..............................          40               member              2000          2005
Carlos Jose Garcia.............................          46               member              2000          2005
</TABLE>

     Jose Salim Mattar Junior. Mr. Mattar is the chairman of board of directors,
the president and the car rental officer of Localiza. Mr. Mattar is also the
president of Franchising, Total Fleet and Prime. He received a degree in
business administration from Fundacao Mineira de Educacao e Cultura in 1976. He
acted as manager of a Brazilian supermarket chain and of a mining company, both
located in Belo Horizonte, Brazil. In 1973, at the age of 25, he was one of
Localiza's founding partners. He is also an indirect partner of Radio Beep
Telecomunicacoes Ltda. and Radio Beep System Ltda.

     Antonio Claudio Brandao Resende. Mr. Resende is a member of the board of
directors, an executive vice-president and the management officer of Localiza.
Mr. Resende is also a vice-president of Franchising, Total Fleet and Prime. He
graduated from Uniao de Negocios e Administracao in 1977 with a degree in
business administration. At the age of 18, he formed Leva e Traz, a delivery
company in Belo Horizonte, Brazil. In 1973, at the age of 27, he was one of
Localiza's founding partners. He is also an indirect partner of Radio Beep
Telecomunicacoes Ltda. and Radio Beep System Ltda.

     Eugenio Pacelli Mattar. Mr. Mattar is a member of the board of directors,
an executive vice president and the fleet management officer of Localiza. Mr.
Mattar is also a vice-president of Franchising, Total Fleet and Prime. He

                                       43
<PAGE>

received a degree in civil engineering from Universidade Federal de Minas Gerais
in 1975, where he also completed extensive coursework in Economic Engineering.
Mr. Mattar has also studied general and financial administration at Fundacao Dom
Cabral. He is one of Localiza's founding partners. He is also an indirect
partner of Radio Beep Telecomunicacoes Ltda. and Radio Beep System Ltda.

     Antonio Fernando de Campos. Mr. Campos is a member of Localiza's board of
directors. He joined Localiza in 1982 in order to implement the marketing and
sales department of Localiza. Mr. Campos left Localiza in 1996 to incorporate
the company Solution Comunicacao. Mr. Campos received post-graduate degree from
Fundacao Getulio Vargas, Pace University in New York City and INSEAD.

     Aristides Luciano de Azevedo Newton. Mr. Newton is a member of the board of
directors of Localiza, a vice-president of Franchising and an officer of MFA. He
received a degree in business administration from Uniao de Negocios e
Administracao in 1973. He acted as manager of materials and supplies for large
construction projects in Brazil for Construtora Mendes Junior. In 1983, at the
age of 39, he founded Franchising in conjunction with Localiza.

     Tarcisio Pinto Ferreira. Mr. Ferreira has been a member of the board of
directors of Localiza since 1996. He received his degree in law from
Universidade Federal de Minas Gerais in 1971. He has been the general counsel to
Localiza since its creation, and is also affiliated with the law firm of
Ferreira and Chagas.

     Messias da Silva Junior. Mr. da Silva Junior has been a member of the board
of directors of Localiza since 1996. Before his retirement, he held various
positions at Localiza and its subsidiaries. He received a degree in law from
Centro Universitario de Barra Mansa/RJ. He began his professional career in 1963
as supervisor of human resources, accounting and supply administration for White
Martins Gases Industriais S.A. In 1973, he began managing the areas of human
resources, finance, logistics, control and administration for Cia. Brasileira de
Projetos Industriais. He worked for Localiza from 1982 to 1996 in a variety of
roles, including administrative officer, officer of operations and officer of
human resources and administration. From 1996 to 1998, he worked for Radio Beep
Telecomunicacoes Ltda. as an executive officer.

     Stefano Bonfiglio. Mr. Bonfiglio has been a member of the board of
directors of Localiza since 2000. Mr. Bonfiglio received his baccalaureate
degree from Georgetown University and his MBA degree from The Wharton School of
the University of Pennsylvania. In 1985 Mr. Bonfiglio joined Bankers Trust
Company, where he worked in several capacities, including Structured/Acquisition
Finance, Mergers & Acquisitions and Private Equity. In 1995 he joined DLJ
Merchant Banking, the private equity arm of Donaldson, Lufkin & Jenrette, based
in New York and London. Currently Mr. Bonfiglio resides in London and is a
founding partner of Stirling Square Capital Partners, a London-based private
equity firm specialized in European buy-outs.

     Carlos Jose Garcia. Mr. Garcia has been a member of the board of directors
of Localiza since 2000. Mr. Garcia received a degree in accounting from the
Catholic University of Argentina. He worked for eight years for Bank of Boston
as Head of their Corporate Finance Group. For six years, Mr. Garcia worked for
Bankers Trust Company in their mergers and acquisitions division and then later
for their Latin America private equity practice. Currently, he lives in Buenos
Aires, Argentina where he is a Managing Director in the Private Equity Division
of CSFB.

     Executive Committee

     As of May 31, 2004, the executive committee was composed of the individuals
named below.

<TABLE>
                                                                                                         Expiration
                                                                                             Officer     of Current
                  Name                       Age                   Position                   Since         Term
--------------------------------------  ---------  -------------------------------------  -----------  --------------
<S>                                           <C>                <C>                           <C>          <C>
Jose Salim Mattar Junior..............        55     executive president                       1973         2005
Antonio Claudio Brandao Resende.......        57     executive vice president and              1973         2005
                                                     management officer
Eugenio Pacelli Mattar................        51     executive vice president and fleet        1973         2005
                                                     management officer
Flavio Brandao Resende................        50     executive vice president and car          1973         2005
                                                     rental officer
</TABLE>


                                       44
<PAGE>


     Flavio Brandao Resende. Mr. Resende is an executive vice president of
Localiza. He is also a vice-president of Franchising, Total Fleet and Prime. He
graduated from Escola de Engenharia Kennedy in 1980 with a degree in civil
engineering. He is one of Localiza's founding partners and is also an indirect
partner of Radio Beep Telecomunicacoes Ltda. and Radio Beep System Ltda.

     For biographies of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende and Eugenio Pacelli Mattar. See--Board of Directors.

  Total Fleet

     Total Fleet is a sociedade anonima. Under Brazilian law, a sociedade
anonima that is privately owned and does not have publicly issued shares, such
as Total Fleet, is not required to have a board of directors. The company is
managed by its executive committee, which consists of four members designated as
officers.

     The executive committee meets at least once a year and at such times as it
may determine. It is responsible for determining general guidelines and policies
for the business and for the day-to-day management of Total Fleet. The officers'
duties include overseeing compliance with applicable law and the decisions
adopted at meetings of shareholders, directing Total Fleet's business and
activities, and preparing the annual budget and monitoring its implementation.

     Under Total Fleet's by-laws, the executive committee must have from four to
eight members, as determined by a vote of the shareholders. Members are elected
for one-year terms at the annual general meeting of shareholders and can be
successively re-elected. They are subject to removal by the shareholders at any
time.

     As of May 31, 2004, the executive committee of Total Fleet was composed of
the individuals named below.

                                                                      Expiration
                                                             Officer  of Current
                  Name                 Age     Position       Since      Term
------------------------------------   ---   --------------  -------  ----------
Jose Salim Mattar Junior............   55      president       1997       2005
Antonio Claudio Brandao Resende.....   57    vice-president    1997       2005
Eugenio Pacelli Mattar..............   51    vice-president    1997       2005
Flavio Brandao Resende..............   50    vice-president    1997       2005

     For biographies of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar and Flavio Brandao Resende. See--Localiza--Board
of Directors and--Executive Committee.

  Franchising

     At a quotaholders' Meeting held on May 1, 2003, the quotaholders of
Franchising approved its transformation from a limited liability company into a
sociedade anonima. Since this date, Franchising has been a sociedade anonima
that is privately owned and does not have publicly issued shares and, therefore,
is not required to have a board of directors. The company is managed by its
executive committee, which consists of five members designated as officers.

     The executive committee meets at least once a year and at such times as it
may determine. It is responsible for determining general guidelines and policies
for the business and for the day-to-day management of Franchising. The officers'
duties include overseeing compliance with applicable law and the decisions
adopted at meetings of shareholders, directing Franchising's business and
activities, and preparing the annual budget and monitoring its implementation.

                                       45
<PAGE>

     Under Franchising's by-laws, the executive committee must have five
members, who are elected for thirteen months terms at the annual general meeting
of shareholders. Members can be successively re-elected and are subject to
removal by the shareholders at any time.

     As of May 31, 2004, the executive committee of Franchising was composed of
the individuals named below.

                                                                      Expiration
                                                             Officer  of Current
                  Name                 Age    Position        Since      Term
------------------------------------   ---   --------------  -------  ----------
Jose Salim Mattar Junior............   55      president       1983       2005
Antonio Claudio Brandao Resende.....   57    vice-president    1983       2005
Eugenio Pacelli Mattar..............   51    vice-president    1983       2005
Flavio Brandao Resende..............   50    vice-president    1983       2005
Aristides Luciano de Azevedo Newton.   59    vice-president    1983       2005

     For biographies of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar, Flavio Brandao Resende and Aristides Luciano de
Azevedo Newton. See --Localiza --Board of Directors and --Executive Committee.

  Prime

     At a quotaholders' Meeting held on May 1, 2003, the quotaholders of Prime
approved its transformation from a limited liability company into a sociedade
anonima. Since this date, Prime has been a sociedade anonima that is privately
owned and does not have publicly issued shares and, therefore, is not required
to have a board of directors. The company is managed by its executive committee,
which consists of four members designated as officers.

     The executive committee meets at least once a year and at such times as it
may determine. It is responsible for determining general guidelines and policies
for the business and for the day-to-day management of Prime. The officers'
duties include overseeing compliance with applicable law and the decisions
adopted at meetings of shareholders, directing Prime's business and activities,
and preparing the annual budget and monitoring its implementation.

     Under Prime's by-laws, the executive committee must have four members, who
are elected for thirteen-month terms at the annual general meeting of
shareholders. Members can be successively re-elected and are subject to removal
by the shareholders at any time.

     As of May 31, 2004, the executive committee of Prime was composed of the
individuals named below.

                                                                      Expiration
                                                             Officer  of Current
                  Name                 Age       Position     Since       Term
------------------------------------   ---   --------------  -------  ----------
Jose Salim Mattar Junior............   55      president      1998        2005
Antonio Claudio Brandao Resende.....   57    vice-president   1998        2005
Eugenio Pacelli Mattar..............   51    vice-president   1998        2005
Flavio Brandao Resende..............   50    vice-president   1998        2005

     For a biography of Jose Salim Mattar Junior, Antonio Claudio Brandao
Resende, Eugenio Pacelli Mattar and Flavio Brandao Resende. See--Localiza--Board
of Directors and--Executive Committee.

  MFA

     MFA is managed by an executive committee, or Directorio. MFA does not
maintain a board of directors, or consejo de administracion. The executive
committee is responsible for both the day-to-day management of MFA and the
implementation of the general guidelines and policies established by Localiza
and Franchising. The executive committee consists of one to three officers, or
directores titulares, and one substitute officer, or director suplente, who are
elected by the shareholders and can be reelected at the will of the
shareholders. The mandated term for each officer is three years, which may be
extended until the day of an officer's reelection or when the term of a
replacement officer begins.

                                       46
<PAGE>

     As of May 31, 2004, the executive committee was composed of the individuals
named below.

<TABLE>
                                                                         Expiration
                                                                Officer  of Current
                  Name                 Age        Position      Since      Term
-------------------------------------  ---   ------------------ -------  ----------
<S>                                    <C>         <C>           <C>       <C>
Leonardo Federici Guedes.............  42         president      2002      2004
Aristides Luciano de Azevedo Newton..  59    substitute officer  1999      2004

</TABLE>

     Leonardo Federici Guedes. Mr. Federici Guedes joined the executive
committee of MFA in 2002. From 1992 to 2002, Mr. Federici Guedes served
Franchising in various position, including general manager for Argentina.
Previously, he worked for Harnischfeger do Brasil Ltda. as supervisor of
international operations. Mr. Federici Guedes received a degree in aeronautical
engineering from the Universidade Federal de Minas Gerais.

     For a biography of Aristides Luciano de Azevedo Newton. See-- Localiza--
Board of Directors.

  Family Relationships

     Jose Salim Mattar Junior and Eugenio Pacelli Mattar are brothers. Antonio
Claudio Brandao Resende and Flavio Brandao Resende are brothers.

B.   Compensation

  General

     For the year ended December 31, 2003, the aggregate compensation we paid to
members of our boards of directors and executive committees, as well as the
officers named above, for services in all capacities, was approximately R$6.0
million.

     We have not set aside or accrued any amounts for pension, retirement or
similar benefits for our boards of directors or executive officers.

     We have entered into management contracts with our senior employees. These
annual contracts contain specific objectives and goals which we and the relevant
employee agree upon, and determine the employee's eligibility for incentive
compensation. Management incentives are based primarily upon the financial
results of the specific operation managed. As of May 31, 2004, we had 219
management contracts with our employees distributed among us as follows:

     o    171 with Localiza employees;

     o    33 with Total Fleet employees;

     o    4 with Franchising employees; and

     o    11 with Prime employees.

     In 2003, we paid R$6.0 million in bonuses to our employees. We pay bonuses
to employees depending on their position and their performance evaluations.

     Each of our employees participates in a performance-based compensation plan
pursuant to which a portion of his or her compensation is a function of our
overall profitability. In addition, we provide a range of benefits to our
employees, including health insurance and, for some of them, food vouchers.

     According to Brazilian labor legislation, employees dismissed without cause
are entitled to an additional payment equivalent to 50% of the outstanding
balance in their mandatory fund for unemployment benefits, known as FGTS, at
dismissal date.

                                       47
<PAGE>

  Stock Option Plan

     The Company sponsors a stock option plan, which grants employees and
directors the option to purchase stocks at prices annually determined. Options
were granted in five installments in the last five years, ended in 2002, and
each installment is exercisable within four years from the grant date, 25% of
the installment per year based on the terms of the grant.

     The options expire on April 30, 2007. The strike price is restated annually
by the IGP-M (General Price Index-Market).

     As of December 31, 2003, no options have been exercised. Had all options
being exercised the current shareholders stake would have a reduction from 100%
to 96.7%.

     The following tables summarize the status of the Company's stock option
plan:

<TABLE>
       Beginning of year               Granted              Forfeited                    End of year
  ---------------------------   -------------------   --------------------   ---------------------------------
                                                                                                      Restated
                                                                                                       strike
  Year     Eligible   Options   Eligible    Options   Eligible     Options   Eligible     Options       price
  ----     --------   -------   --------    -------   --------     -------   --------     -------       -----
<S>           <C>     <C>          <C>      <C>           <C>      <C>          <C>      <C>           <C>
  2001        36      407,750       -       154,500       4        34,250       32       528,000      R$ 31.75
  2002        32      528,000       2       153,000       2        48,000       32       633,000      R$ 32.89
  2003        32      633,000       -           -         4       102,000       28       531,000           -

</TABLE>

                             Remained        Restated strike
                   Year      options             price
                   ----    -----------     -------------------
                   1998       90,000             R$ 20.14
                   1999      102,000             R$ 31.55
                   2000      109,000             R$ 29.55
                   2001      112,000             R$ 31.75
                   2002      118,000             R$ 32.89
                           ---------
                             531,000
                           ---------

     As allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", we elected to continue to measure
cost for our stock option plan using the intrinsic value based method for
variable stock plan as prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic value
method, cost is the excess, if any, of the quoted market price of the stock at
the grant date or other measurement date over the amount an employee must pay to
acquire the stock. Entities choosing to continue applying APB Opinion No. 25 on
employee stock options granted on or after January 1996 must provide pro forma
disclosures of net income, as if the fair value method of accounting had been
applied. Under this method cost is measured at the grant date based on the fair
value of the employee stock option and is recognized ratably over the service
period of the option, which is usually the vesting period. For all periods
presented, fair value of our shares did not exceed the exercise prices of the
options and consequently, no compensation expense was recorded. Additionally,
the pro forma disclosures required by SFAS No. 123 have not been presented as
the effect of measuring compensation expense under SFAS No. 123 was immaterial
for all periods presented.

C.   Board Practices

     Localiza is managed by its board of directors, or conselho de
administracao, and its executive committee, or diretoria executiva.

  Board of Directors

     Localiza's board of directors meets whenever a simple majority of the
members of the board of directors (or the chairman of the board of directors in
absence of a determination by the board of directors) determines so from time to
time, but at least every three months, and is responsible for determining
general guidelines and policies for Localiza's business, appointing, supervising
and monitoring the activities of the executive officers, appointing independent
auditors and implementing and supervising internal audits.

     Under Localiza's by-laws, the board of directors must have nine members.
Board members are elected for terms of one year at the annual general meeting of
shareholders and can be successively re-elected. They are subject to removal by
the shareholders at any time. As per Brazilian law, members of the board of
directors must own at

                                       48
<PAGE>

least one share of Localiza. Neither Localiza nor any of its subsidiaries
maintains any services contracts with any members of the board of directors
providing for benefits upon termination of their functions as board members.

  Executive Committee

     Localiza's executive committee is responsible for Localiza's day-to-day
management and implementation of the general guidelines and policies established
by the board of directors. The executive committee's duties include overseeing
compliance with applicable law and with the decisions adopted at meetings of
shareholders, directors and executive officers, managing Localiza's business and
activities, preparing the annual budget and monitoring its implementation after
approval by the board of directors.

     Under Localiza's by-laws, the board of directors appoints four executive
officers to form the executive committee. Members of the executive committee
must be residents of Brazil, are appointed to terms of one year and can be
successively re-appointed. They are subject to removal at any time by the board
of directors.

     Fiscal Council

     Under Brazilian corporate law and our by-laws, we are not required to, and
currently do not, maintain a permanent fiscal council. We would, however, be
required to establish a fiscal council upon the request of shareholders who hold
2% of the common shares or 1% of the preferred shares, pursuant CVM Instruction
324 of January 19, 2000 that altered the percentages referred to in Article 161,
Paragraph 2 of Law 6,404/76, based on its prerogative established in Article 291
of Law 6,404/76. The primary responsibility of the fiscal council, which, if
established, would act independently from our management and external auditors,
would be to review our consolidated financial statements and report on them to
our shareholders.

  Audit Committee

     Under the Brazilian Corporation Law and its by-laws, Localiza is not
required to maintain and does not currently maintain a permanent audit
committee. Our board of directors approves our financial statements, the
performance of our auditors, either for audit or permissible non-audit services,
and related fees, fulfilling the function of an audit committee.

D.   Employees

     The table below shows the number of employees for the three years ended
December 31, 2003, distributed among our divisions as follows:

                                                             At December 31,
                                                       -------------------------
                                                        2001      2002      2003
                                                       -----     -----     -----
Division:
     Car rental.......................................   790       851     1,061
     Fleet management.................................    83        95        97
     Used car sales...................................    92       126       188
     Franchising......................................    26        24        26
     Administrative...................................    77        80        78
                                                       -----     -----     -----
         Total........................................ 1,068     1,176     1,450
                                                       =====     =====     =====

     We hire independent contractors to perform certain non-core activities,
such as fleet maintenance, fueling, car washing, cleaning, security and
chauffeuring.

     All of our employees are represented by unions, including the Federacao do
Comercio, the Sindicato dos Agentes Autonomos no Comercio, and the Confederacao
dos Trabalhadores no Comercio. We have never experienced a labor strike and we
believe that our relationships with our employees and with the unions are good.

                                       49
<PAGE>

E.   Share Ownership

     Each member of Localiza's board of directors owns at least one of
Localiza's shares, as required by the Brazilian Corporation Law. Some members of
Localiza's board of directors own more shares in Localiza through their
participation in holding companies. See Item 7. Major Shareholders and Related
Party Transactions.

     Aristides Luciano de Azevedo Newton, who is a vice-president of Franchising
and a substitute officer of MFA, holds a 7.5% interest in Franchising and,
indirectly, a 7.5% interest in MFA.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   Major Shareholders

  Localiza

     The table below sets forth information regarding Localiza's ownership by
each person who we know to be the beneficial owner of more than 5% of Localiza's
common shares and by directors and officers as a group as of May 31, 2004.

                                                                      Percentage
                                                        Number of     of Common
                                                      Common Shares     Shares
                                                      -------------   ----------
Jose Salim Mattar Junior.............................    3,071,997       20.00%
Antonio Claudio Brandao Resende......................    3,071,997       20.00
Flavio Brandao Resende...............................    2,047,998       13.33
Eugenio Pacelli Mattar...............................    2,047,999       13.33
DLJ Funds............................................    5,120,000       33.34
Directors and executive officers as a group..........            9        0.00
                                                        ----------      ------
     Total...........................................   15,360,000      100.00%
                                                        ==========      ======

     Shareholders' Agreement

     Localiza's shareholders are parties to an agreement entered into on March
10, 1997 which includes, among other provisions:

     o    a provision which permits affiliates of Localiza's founders (Jose
          Salim Mattar Junior, Eugenio Pacelli Mattar, Antonio Claudio Brandao
          Resende and Flavio Brandao Resende) to appoint seven members of the
          board of directors and affiliates of CSFB to appoint two members of
          the board of directors, subject to adjustment based on changes in the
          respective ownership percentages of these shareholders;

     o    a provision which grants CSFB the right to veto certain significant
          actions provided that CSFB continues to hold at least a minimum
          percentage of our equity;

     o    a provision which restricts the ability of Localiza's founders and of
          CSFB to transfer their respective common shares;

     o    reciprocal rights to participate in certain transfers of common shares
          by Localiza's founders and CSFB;

     o    a provision which requires that from March 10, 2001, Localiza, at the
          option of CSFB, take all actions necessary to facilitate a public
          offering of the shares held by CSFB, subject to certain other
          conditions;

     o    a provision which requires that Localiza establish an American
          Depositary Receipt program;

     o    a provision which requires that Localiza's founders participate,
          subject to certain conditions, at the option of CSFB, in a sale of all
          of Localiza's outstanding common shares; and

                                       50
<PAGE>

     o    a provision which grants Localiza's founders and CSFB the right to
          convert their respective common shares into preferred shares.

  Subsidiary Guarantors

     The table below sets forth information regarding beneficial ownership of
each subsidiary guarantor.

                                                   Percentage Owned By
                                            ----------------------------------
                                                                    Directors
                                                                    of
                                            Localiza   Franchising  Localiza
                                            --------   -----------  --------
Total Fleet.................................   100.0%        --         --
Franchising.................................    92.5%        --        7.5%
Prime.......................................   100.0%        --         --
MFA.........................................     --        99.996%      --

B.   Related Party Transactions

     In 1999, Localiza sold its subsidiary, Alterosa Estacionamentos Ltda.
("Alterosa"), to Locapar Participacoes e Administracao Ltda. ("Locapar"), a
company owned by our controlling shareholders, and recorded an accounts
receivable from Locapar. Alterosa's assets were principally comprised of land in
the city of Sao Paulo. Given that Localiza and Locapar are under common control,
no gain was recorded on the sale. During 2000, this land returned to Localiza as
consideration for the receivable originating from the sale of Alterosa. The land
was recorded as "other current asset - properties available for sale" until
January 2001, when it was sold to third parties for R$6.0 million, resulting in
a gain of R$4.6 million, recorded as other non-operating income.

     Total Fleet, Franchising and Prime use the administrative and advertising
structure of Localiza. Localiza and Total Fleet use the intermediation services
of purchase and sale of vehicles and accessories rendered by Prime and pay Prime
a fee for these services. Localiza provides car rental services to Total Fleet
whenever Total Fleet needs a car replacement. Total Fleet also uses the location
and structure of Localiza to sell, through Prime, its used cars to the market
and reimburses Localiza for these services. In 2002, Localiza sold 320 vehicles
in the amount of R$3.8 million to Total Fleet. These transactions were carried
out at an arm's length basis and consistent with the prevailing market
conditions.

C.   Interests of Experts and Counsel

     Not Applicable.

ITEM 8. FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information

     For our consolidated audited financial statements, and notes thereto, see
Item 18. Financial Statements.

  Dividends and Distributions

     In accordance with the Brazilian Corporation Law, Localiza's by-laws
require that its shareholders be paid a minimum annual dividend of 25% of
adjusted net profits. However, upon the vote of 100% of the shareholders present
at a general meeting, such shareholders can declare a lower dividend or decide
not to declare dividends. In addition, upon the recommendation of the board of
directors that the payment of a dividend in respect of any period would be
inadvisable due to our financial situation, the payment of the minimum dividend
in respect of such period is not mandatory. In such case, the adjusted net
profits which were not distributed for this reason are to be recorded as a
special reserve and, if not absorbed by losses in subsequent fiscal years, are
to be paid as soon as our financial situation permits it.

                                       51
<PAGE>

  Legal Proceedings

     We are party to certain legal proceedings arising in the normal course of
business, including civil, administrative, tax, social security and labor
proceedings. We believe that these actions, if decided adversely to us, would
not have a material adverse effect on our business, financial condition or
results of operations. Reserves have been established in connection with certain
of these matters. There are no material legal or administrative proceedings
pending against us with respect to any environmental matters.

     We are party to several labor claims related principally to the payment of
overtime and related social security charges. Our management, based on the
opinion of legal counsel, believes that the recorded accrual for these claims is
sufficient to cover possible losses. See note 17 to the Localiza audited
financial statements.

B.   Significant Changes

     None.

ITEM 9. THE OFFER AND LISTING

A.   Offer and Listing Details

     Not applicable.

B.   Plan of Distribution

     Not applicable.

C.   Markets

     The Notes currently trade in the over-the-counter market. The Notes are not
listed on any securities exchange, nor are they quoted through any automated
quotation system. There can be no assurance that an active market for the Notes
will develop or as to the liquidity of any such market. There are currently
US$73.9 million of Notes held by non-affiliates of Localiza.

D.   Selling Shareholders

     Not applicable.

E.   Dilution

     Not applicable.

F.   Expenses of the Issue

     Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.   Share Capital

     Not applicable.

B.   Memorandum and Articles of Association

  Localiza

     Localiza is registered with the Board of Trade of the State of Minas Gerais
under the number 3130001144-5. Pursuant to article 3 of Localiza's by-laws,
Localiza's corporate purpose is the rental of cars, fleets of cars and their

                                       52
<PAGE>

disposal at the end of their useful economic life and the exploitation and
licensing of trademarks and franchises in Brazil and elsewhere.

     There are no provisions in Localiza's by-laws with respect to:

     o    a director's power to vote on proposals in which the director is
          materially interested,

     o    a director's power, in the absence of an independent quorum, to vote
          compensation for him or herself or for any other member of the board
          of directors,

     o    borrowing powers exercisable by the directors,

     o    age limits for retirement of directors,

     o    anti-takeover mechanisms or other procedures designed to delay, defer
          or prevent changes in our control, except for the preemptive rights
          mentioned below,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Each of the nine members of the board of directors is required to own at
least one of Localiza's shares.

     Under Brazilian Corporation Law, Localiza is not required to disclose
information on share ownership, and Localiza's by-laws do not have a provision
on the disclosure of share ownership.

     Voting Rights

     Each common share entitles its holder to one vote at shareholders'
meetings.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Localiza's by-laws, the
shareholders are entitled to decide all matters relating to Localiza's
objectives and to approve any resolution that they deem necessary for Localiza's
protection and growth. Annual shareholders' meetings must be held until April 30
of each year. In addition, special shareholders' meetings may be held as often
as deemed necessary. General meetings are called by the chairman of Localiza's
board of directors, as prescribed by the Brazilian Corporation Law, and are
chaired by a shareholder elected by a majority of votes of those present at the
meeting. The chairperson appoints the secretary of the meeting. Localiza's
shareholders may be represented at the general meeting by an attorney-in-fact,
who must be a shareholder, one of Localiza's general officers or directors, or a
lawyer. Directors' compensation is determined by shareholders at a shareholder
meeting.

     Common Shares and Preferred Shares

     As of May 31, 2004, Localiza has 15,360,000 common registered shares, no
par value per share.

     The issuance of preferred shares is limited by the Brazilian Corporation
Law to 50% of the total capital of the company. Currently, Localiza does not
have preferred shares. Pursuant to Localiza's by-laws, any future preferred
shares would not be convertible into common shares and would not have voting
rights. Pursuant to Localiza's by-laws, holders of future preferred shares would
be entitled to (a) a minimum annual non-cumulative preferential dividend equal
to R$0.01 per share, (b) priority in the reimbursement of the corporate capital,
in case of liquidation, and (c) right to participate in capital increases
derived from capitalization of profits or reserves in the same conditions as
holders of common shares. Preferred shares would acquire voting rights, however,
if Localiza does not pay the minimum preferential dividend for three consecutive
years. In this case, voting rights for preferred shares would continue until the
payment of non-cumulative dividends is made.

                                       53
<PAGE>

     There are no restrictions under Brazilian law or Localiza's by-laws
limiting the rights of non-residents or non-Brazilian shareholders to hold or
exercise voting rights on Localiza's shares.

     Preemptive Rights

     Localiza's by-laws do not have provisions regarding shareholders'
preemptive rights. Under Brazilian Corporation Law, however, each of Localiza's
shareholders has a general preemptive right to subscribe for shares of the same
class in any capital increase, in an amount sufficient to keep the same
proportional participation of each shareholder in Localiza's total capital.
Localiza shall observe a minimum period of 30 days following the publication of
the capital increase notice, for the exercise of the preemptive right by its
shareholders.

  Total Fleet

     Total Fleet is a sociedade anonima registered with the Board of Trade of
the State of Minas Gerais under the number 3130001301-4. Pursuant to article 3
of Total Fleet's by-laws, Total Fleet's corporate purpose is the rental and/or
management of fleets of cars. Total Fleet is managed by an executive committee
composed of a minimum of four members and a maximum of eight members.

     There are no provisions in Total Fleet's by-laws with respect to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    an executive officer's power, in the absence of an independent quorum,
          to vote compensation for him or herself or for any other member of the
          executive committee,

     o    borrowing powers exercisable by the executive officers,

     o    the number of shares required for an executive officer's
          qualification,

     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in Total Fleet's control, except for the preemptive
          rights mentioned below,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Under Brazilian law, Total Fleet is not required to disclose information on
share ownership, and Total Fleet's by-laws do not have a provision on the
disclosure of share ownership.

     Voting Rights

     Each common share entitles its holder to one vote at a shareholders'
meeting.

     There are no restrictions under Brazilian law or Total Fleet's by-laws
limiting the rights of non-residents or non-Brazilian shareholders to hold or
exercise voting rights on Total Fleet's shares.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Total Fleet's by-laws, the
shareholders are entitled to decide all matters relating to Total Fleet's
objectives and to approve any resolution that they deem necessary for Total
Fleet's protection and growth. Annual shareholders' meetings must be held until
April 30 of each year. In addition, special shareholders' meetings may be

                                       54
<PAGE>

held as often as deemed necessary. General meetings are called by Total Fleet's
executive committee, as prescribed by the Brazilian Corporation Law, and are
presided over by a shareholder elected by a majority of votes of those present
at the meeting. The chairperson appoints the secretary of the meeting. Total
Fleet's shareholders may be represented at the general meeting by an
attorney-in-fact, who must be a shareholder, one of the general officers, or a
lawyer. Compensation for executive officers is determined by the shareholders at
a shareholders' meeting.

     Common Shares and Preferred Shares

     As of May 31, 2004, Total Fleet has 109,630,000 registered common shares,
no par value per share, and is a wholly owned subsidiary of Localiza.

     Total Fleet does not have any preferred shares.

     Preemptive Rights

     Total Fleet's by-laws do not have provisions regarding shareholders'
preemptive rights. Under Brazilian Corporation Law, however, each of Total
Fleet's shareholders has a general preemptive right to subscribe for shares of
the same class in any capital increase, in an amount sufficient to keep the same
proportional participation of each shareholder in Total Fleet's total capital.
Total Fleet shall observe a minimum period of 30 days following the publication
of the capital increase notice for the exercise of the preemptive right by its
shareholders.

  Franchising

     Franchising is a sociedade anonima registered with the Board of Trade of
the State of Minas Gerais, under the number 3130001797-4. Pursuant to article 3
of Franchising's by-laws, Franchising's corporate purpose is to manage the
franchising business of Localiza. Franchising is managed by an executive
committee composed of five officers.

     There are no provisions in Franchising's by-laws with respect to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    an executive officer's power, in the absence of an independent quorum,
          to vote compensation for him or herself or for any other member of the
          executive committee,

     o    borrowing powers exercisable by the executive officers,

     o    the number of shares required for an executive officer's
          qualification,

     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in Franchising's control, except for the legal
          preemptive rights of shareholders in capital increases,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Under Brazilian law, Franchising is not required to disclose information of
share ownership, and Franchising does not have a provision on the disclosure of
share ownership.

     Voting Rights

     Each common share entitles the holder thereof to one vote at a
shareholders' meeting.

                                       55
<PAGE>

     There are no restrictions under Brazilian law or Franchising's by-laws
limiting the rights of non-residents or non-Brazilian shareholders to hold or
exercise voting rights of Franchising's shares.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Franchising's by-laws, the
shareholders are entitled to decide all matters relating to Franchising's
objectives and to approve any resolution that they deem necessary for
Franchising's protection and growth. Annual shareholders' meetings must be held
until April 30 of each year. In addition, special shareholders' meetings may be
held as often as deemed necessary. General meetings are called by Franchising's
executive committee, as prescribed by the Brazilian Corporation Law, and are
presided over by a shareholder elected by a majority of votes of those present
at the meeting. The chairperson appoints the secretary of the meeting.
Franchising's shareholders may be represented at the general meeting by an
attorney-in-fact, who must be a shareholder, one of the general officers, or a
lawyer. Compensation for executive officers is determined by the shareholders at
a shareholders' meeting.

     Common Shares and Preferred Shares

     As of May 31, 2004, Franchising has 116,254 registered common shares, no
par value per share.

     Franchising does not have any preferred shares.

     Preemptive Rights

     Franchising's by-laws do not have provisions regarding shareholders'
preemptive rights. Under Brazilian Corporation Law, however, each of
Franchising's shareholders has a general preemptive right to subscribe for
shares of the same class in any capital increase, in an amount sufficient to
keep the same proportional participation of each shareholder in Franchising's
total capital. Franchising shall observe a minimum period of 30 days following
the publication of the capital increase notice for the exercise of the
preemptive right by its shareholders.

  Prime

     Prime is a sociedade anonima, registered with the Board of Trade of the
State of Minas Gerais under the number 3130001805-9. Pursuant to article 3 of
Prime's by-laws, Prime's corporate purpose is to deal with the intermediation of
used car sales and related services. Prime is managed by an executive committee
composed of four officers.

     There are no provisions in Prime's by-laws with respect to:

     o    an executive officer's power to vote on a proposal, arrangement or
          contract in which the executive officer is materially interested,

     o    an executive officer's power, in the absence of an independent quorum,
          to vote compensation for him or herself or for any other member of the
          executive committee,

     o    borrowing powers exercisable by the executive officers,

     o    the number of shares required for an executive officer's
          qualification,

     o    age limits for retirement of executive officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in Prime's control, except for the legal preemptive
          rights of shareholders in capital increases,

     o    redemption of shares,

     o    sinking funds, or

                                       56
<PAGE>

     o    liability to further capital calls by the company.

     Under Brazilian law, Prime is not required to disclose information of share
ownership, and Prime does not have a provision on the disclosure of share
ownership.

     Voting Rights

     Each common share entitles the holder thereof to one vote at a
shareholders' meeting.

     There are no restrictions under Brazilian law or Prime's by-laws limiting
the rights of non-residents or non-Brazilian shareholders to hold or exercise
voting rights of Prime's shares.

     Shareholders' Meetings

     Under the Brazilian Corporation Law, at a general meeting of shareholders,
convened and held in accordance with such law and Prime's by-laws, the
shareholders are entitled to decide all matters relating to Prime's objectives
and to approve any resolution that they deem necessary for Prime's protection
and growth. Annual shareholders' meetings must be held until April 30 of each
year. In addition, special shareholders' meetings may be held as often as deemed
necessary. General meetings are called by Prime's executive committee, as
prescribed by the Brazilian Corporation Law, and are presided over by a
shareholder elected by a majority of votes of those present at the meeting. The
chairperson appoints the secretary of the meeting. Prime's shareholders may be
represented at the general meeting by an attorney-in-fact, who must be a
shareholder, one of the general officers, or a lawyer. Compensation for
executive officers is determined by the shareholders at a shareholders' meeting.

     Common Shares and Preferred Shares

     As of May 31, 2004, Prime has 15,000 registered common shares, no par value
per share and is a wholly-owned subsidiary of Localiza.

     Prime does not have any preferred shares.

     Preemptive Rights

     Prime's by-laws do not have provisions regarding shareholders' preemptive
rights. Under Brazilian Corporation Law, however, each of Prime's shareholders
has a general preemptive right to subscribe for shares of the same class in any
capital increase, in an amount sufficient to keep the same proportional
participation of each shareholder in Prime's total capital. Prime shall observe
a minimum period of 30 days following the publication of the capital increase
notice for the exercise of the preemptive right by its shareholders.

  MFA

     MFA is registered with the Argentine public register of commerce under
number 9043, Book III File A of Sociedades por Acciones. Subsequently, amended
on September 30, 1999, under number 3602, Book 10 of Sociedades por Acciones, on
October 4, 2000, under number 18285, Book 13 of Sociedades por Acciones, and on
December 17, 2002, under number 3588, Book 20 of Sociedades por Acciones.
Pursuant to article 3 of MFA's by-laws, its corporate purpose is:

     o    to sub-license to third parties the right to use Localiza's brand
          name, or any other brand name that may replace or supplement it in the
          future, for the purpose of operating the business of renting cars,
          along with related services,

     o    to manage the sub-license system of Localiza's brand name, or any
          other brand name that may replace or supplement it in the future,
          related with the car rental activities or supplementary services,

     o    to manage Localiza's brand name, or any other brand name that may
          replace or supplement it in the future, through the collection of
          royalties, commissions, fees, tariffs, funds or any other type of
          compensation, as well as the sale of printed materials an other
          related activities,

                                       57
<PAGE>

     o    to transfer technology and know-how through training programs and to
          supply manuals and other materials in connection with the
          sub-licensing of Localiza brand name, or any other brand name that may
          replace or supplement it in the future, and

     o    to carry out activities related to the above-mentioned corporate
          purposes.

     There are no provisions in MFA's by-laws with respect to:

     o    an officer's power to vote on a proposal, arrangement or contract in
          which the officer is materially interested,

     o    an officer's power, in the absence of an independent quorum, to vote
          compensation for him or herself or for any other officer,

     o    borrowing powers exercisable by the officers,

     o    the number of shares required for an officer's qualification,

     o    age limits for retirements of officers,

     o    anti-takeover mechanism or other procedures designed to delay, defer
          or prevent changes in MFA's control,

     o    redemption of shares,

     o    sinking funds, or

     o    liability to further capital calls by the company.

     Voting Rights

     Each common share entitles the holder thereof to one vote at the
shareholders' meetings.

     Shareholders' Meetings

     MFA is required to hold a general shareholders' meeting in each fiscal year
to consider the matters outlined in Article 234 of Argentina's Business
Companies Law, including:

     o    approval of MFA's audited financial statements and general performance
          of the officers in the preceding fiscal year,

     o    election, removal and compensation of officers, and

     o    allocation of profits.

     Matters which may be considered at shareholders' general meetings include
consideration of the responsibilities of the officers, as well as capital
increases and the issuance of negotiable debentures. In addition, special
shareholders' meetings may be called at any time to consider matters beyond the
scope of the general meeting, including amendments to the by-laws, issuances of
certain securities that permit profit sharing, anticipated dissolution, merger
and transformation from one type of company into another. Shareholders' meetings
may be convened by the executive committee.

     Shareholders' meetings are called by publication at least ten days before
the date of the meeting, in the Official Gazette of the Republic of Argentina
for five days, and in a widely circulated newspaper in Argentina. In order to
attend a meeting, shareholders must communicate their attendance at least three
business days before the date of the meeting. Nevertheless, said publications
may be omitted if the attendance of all the shareholders is confirmed with
certainty and the shareholders take unanimous decisions.

                                       58
<PAGE>

     Common Shares and Preferred Shares

     As of May 31, 2004, MFA has 25,000 common shares, par value ARP1.00 per
share. Currently, MFA does not have any preferred shares.

     There are no restrictions under Argentine law or MFA's by-laws limiting the
rights of non-residents or non-Argentine shareholders to hold or exercise voting
rights on MFA's shares, provided that said shareholder has comply with the
requirements stated under Argentina's Business Companies Law.

     Preemptive Rights

     MFA's by-laws do not have provisions regarding shareholders' preemptive
rights. MFA's shares may be freely transferred to third parties.

     As stated under section 214 of Argentine Business Association Law, MFA's
common shares may be freely transferred to third parties. In addition, there are
no limitations to the transfer of shares or preemptive rights in the By-Laws.

     Nevertheless, Section 194 of Argentine Business Association Law, states
that if MFA issues new shares, then existing shareholders will have the
preemptive right to acquire new shares, in proportion to the their holdings of
existing shares. In said case, MFA will offer the new shares to its shareholders
through publications for three days in an official bulletin and in some cases an
additional publication in an important newspaper is also required. The
shareholders must exercise their preferential right to purchase the shares
offered within 30 days from the last publication day.

C.   Material Contracts

None.

D.   Exchange Controls

     There are no restrictions on ownership of the Notes by individuals or legal
entities domiciled outside Brazil.

     Brazilian law provides that whenever there is a serious imbalance in
Brazil's balance of payments or reasons to foresee a serious imbalance, the
Brazilian government may impose temporary restrictions on the remittance to
foreign investors of the proceeds of their investments in Brazil. The last
occurrence of restrictions on the remittance of foreign capital was in 1989
when, for approximately six months until early 1990, the Brazilian government
froze all dividend and capital repatriations that were owed to foreign equity
investors and held by the Central Bank of Brazil in order to conserve Brazil's
foreign currency reserves. These amounts were subsequently released in
accordance with Brazilian government directives. There can be no assurance that
similar measures will not be taken by the Brazilian government in the future.

     The Brazilian government currently restricts the ability of Brazilian and
foreign persons or entities to convert Brazilian currency into U.S. dollars or
other currencies other than in connection with certain authorized transactions.
The issuance of the Notes has been authorized by, and is currently
electronically registered with, the Central Bank of Brazil. The Central Bank of
Brazil had issued a certificate of registration, which was later replaced by the
electronic registration currently in place, authorizing each of the scheduled
payments of principal at maturity and interest on the Notes. However, consent
from the Central Bank of Brazil will be needed for (i) the payment of principal
of, and premium, if any, and interest on the Notes upon acceleration of the
Notes following an event of default, (ii) payments in respect of the Notes upon
certain optional redemption events or upon a repurchase of the Notes by us or
our affiliates under certain circumstances or in the event of certain changes in
Brazilian law relating to tax withholding, and (iii) overdue payments, in the
event that any payment in connection with the Notes is not paid in full by 120
days after the date that such payment becomes due and payable. There can be no
assurance that we will obtain the necessary consents from the Central Bank of
Brazil for the remittance abroad of the foregoing payments.

                                       59
<PAGE>

     There can be no assurance that the Brazilian government will not in the
future (i) restrict, by limiting access to foreign currency or otherwise, the
ability of Brazilian entities, such as Localiza, to repay foreign currency
denominated indebtedness, such as the Notes, or (ii) require that any payments
on indebtedness be made in Brazilian reais. The likelihood of the imposition of
restrictions by the Brazilian government may be affected by, among other
factors, the extent of Brazil's foreign currency reserves, the availability of
foreign currency in the foreign exchange markets on the date a payment is due,
the size of Brazil's debt service burden relative to the economy as a whole,
Brazil's policy towards the IMF and political constraints to which Brazil may be
subject. See Item 3. Key Information--Exchange Rates.

E.   Taxation

     Not applicable.

F.   Dividends and Paying Agents

     Not applicable.

G.   Statement by Experts

     Not applicable.

H.   Documents on Display

     Statements contained in this annual report as to the contents of any
contract or other document referred to are not necessarily complete, and each of
these statements is qualified in all respects by reference to the full text of
such contract or other document filed as an exhibit hereto. A copy of the
complete annual report including the exhibits and schedules filed herewith may
be inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 233 Broadway, New York,
New York 10279, and copies of all or any part of the annual report may be
obtained from such offices upon payment of the fees prescribed by the SEC.

     We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and in accordance therewith, will file
periodic reports and other information with the SEC. These periodic reports and
other information will be available for inspection and copying at the public
reference facilities of the SEC regional offices referred to above. As a foreign
private issuer, we are exempt from certain provisions of the Exchange Act
prescribing the furnishing and content of proxy statements and periodic reports
and from Section 16 of the Exchange Act relating to the short-swing profits
reporting and liability.

     We will provide without charge to each person to whom this report is
delivered, upon written or oral request, copies of all reports we are required
to file with the SEC under the Exchange Act, including our annual reports in
English, containing a brief description of our operations and our annual
consolidated audited financial statements which will be prepared in accordance
with U.S. GAAP, and a copy of any or all of the documents incorporated by
reference into this annual report (other than exhibits, unless such exhibits are
specifically incorporated by reference in such documents). Written request for
such copies should be directed to Localiza Rent a Car S.A., Av. Bernardo
Monteiro, 1563 Funcionarios 30150-902- Belo Horizonte, Minas Gerais, Brazil,
Attention: Financial Department. Telephone requests may be directed to
55-31-3247-7040.

I.   Subsidiary Information

     Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our debt portfolio is principally composed by the Notes, which were issued
as long-term US dollar denominated obligations and were incurred primarily in
connection with capital expenditures and repayments of

                                       60
<PAGE>

short-term loans. As a consequence, we should be exposed to the foreign currency
exchange risk, once our revenues and operating expenses are principally real
denominated. In view of this currency mismatch between revenues and debt, we
have swapped the principal and interest market risk of the Notes for the
domestic interest risk - CDI (Interbank Deposit Certificate) through swap
transactions, seeking to protect us from its exposure to dollar denominated
liabilities.

     As of December 31, 2003, our US dollar-denominated debt, in the amount of
R$227.2 million (including interest payable of R$5.4 million and R$8.3 million
of "Compror" transactions), was protected against currency devaluation by swap
transactions.

   Swap Transactions

     As of December 31, 2003, R$227.2 million of our debt was denominated in US
dollars, while all our revenues were denominated in reais. We contracted swap
transactions aiming at protecting our U.S. dollar denominated liabilities, which
were outstanding during the year ended December 31, 2003, against the
devaluation of real. The swap's terms are as follows:

<TABLE>
                                                                                                          Unrealized
                                          US$ rate                                           Unrealized   gain/(loss)
                             Notional        at                                              loss as of      as of
   Date of                   amount -     contract                                            December     December
  contract      Due date       US$          date        Company pays      Company receives    31, 2002     31, 2003
  --------      --------       ---          ----        ------------      ----------------   ----------   -----------
                                                                                             (In thousands of reais)
<S>               <C>           <C>         <C>             <C>                 <C>               <C>          <C>
Short term:
                                                                           Exchange rate
    From          From        2,811        2.9420        100% CDI +         variation +            -           25
  12/15/03      01/29/04                                 1.72% p.a.       coupon of 5.50%
                                                                               p.a.

Long term:
                                                                           Exchange rate
    From                                    From                            variation +
 09/05/01 to    09/29/05      66,300      2.5642 to       100% CDI          coupon (from        (12,031)     (18,950)
  10/16/01                                 2.7400                          9.30% to 9.80%
                                                                               p.a.)

                                                        Exchange rate
    From        09/29/05      5,400        2.8839        variation +
  10/21/03                                             coupon of 5.10%
                                                            p.a.              100% CDI                -         (122)
                                                                                                -------      -------
                                                                                                (12,031)     (19,047)
Current liabilities - Loans and financing                                                             -           25
                                                                                                -------      -------
Noncurrent liabilities - Unrealized loss on derivatives                                         (12,031)     (19,072)
                                                                                                =======      =======
</TABLE>

     As of December 31, 2003, the notional amount of swap contracted plus
accrued coupon was US$75.4 million.

     The unrealized loss has been determined based on the fair value of these
swap transactions which was estimated based on discounting future contracted
cash flow considering market rates, terms and conditions at each balance sheet
date.

  Permitted Investment in Notes

     In October 1997, we issued the Notes, which have a fixed interest rate of
10.25% and which will mature on October 1, 2005. In 1998 and 1999, we
repurchased part of the Notes corresponding to the principal amount of US$26.1
million equivalent to R$75.4 million in December 31, 2003.

  Market Risk Sensitive Instruments

     The table below presents information related to market risk sensitive
instruments:

<TABLE>


                                       61
<PAGE>

                                                        Fair   Expected Maturity Dates
                                                      Value At -----------------------
                                                      December                         Repurchased
                               Rate       Currency    31, 2003       2004     2005       Portion      Total
                               ----       --------    --------       ----     ----       -------      -----
                                                                (In millions of reais)
<S>                            <C>            <C>         <C>        <C>       <C>          <C>         <C>
Notes (principal)....          10.25%         US$        207.1         -      288.9        75.4        213.5
Swap transactions....          (1)            US$         19.1         -       19.1         -           19.1
                                                                    ----      -----       -----        -----
                                                                       -      308.0        75.4        232.6
                                                                    ====      =====       =====        =====
(1)  See note 18 of Localiza audited financial statements
</TABLE>


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

     None.

ITEM 15. CONTROLS AND PROCEDURES

     Our president and chief executive officer, Jose Salim Mattar Junior and our
principal financial officer, Roberto Antonio Mendes, have evaluated, together
with management, the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of December 31, 2003, the end of the period covered by this
report. Based on this evaluation, our chief executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective at the reasonable assurance level for the purpose of collecting,
analyzing and disclosing the information that we are required to disclose in the
reports we file under the Securities Exchange Act of 1934, within the time
periods specified in the SEC's rules and forms.

There have been no significant changes in our internal controls over financial
reporting or other factors during the annual period covered by this Form 20-F
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.


     In light of the new regulatory framework introduced by the Sarbanes-Oxley
Act of 2002, on April 30, 2003 we established a disclosure committee consisting
of Antonio Claudio Brandao Resende (a member of our board of directors and an
executive vice president), Eugenio Pacelli Mattar (a member of our board of
directors, an executive vice president and our fleet management officer),
Aristides Luciano de Azevedo Newton (a member of our board of directors, an
executive vice president of Franchising and an officer of MFA), Marco Antonio
Guimaraes (our car resale officer), Eugenia Rafael (our car rental officer),
Tarcisio Pinto Ferreira (our general counsel) and Claudia Leao (our controller).
The committee is generally responsible for considering the materiality of
information and determining our disclosure obligations on a timely basis. The
committee also allocates reviewing responsibilities to the appropriate officers
within Localiza or any of its subsidiaries. The committee, together with our
chief executive officer and chief financial officer, has the responsibility for
the evaluation of the effectiveness of our disclosure and control procedures and
may generally take all action deemed necessary or desirable to ensure compliance
with such procedures.

                                       62
<PAGE>

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

     Under Brazilian corporate law, we are not required to, and currently do not
maintain, a permanent audit committee. Consequently, we do not currently have a
financial expert performing audit functions.

ITEM 16B. CODE OF ETHICS

     We have adopted a code of ethics which covers all of our employees,
including our principal executive officer, principal financial officer and
controller and other directors and officers. The objective of this code is: (i)
to reduce the subjectivity of personal interpretations of ethical principles;
(ii) to be a formal and institutional benchmark for the professional conduct of
our employees, including the ethical handling of actual or apparent conflicts of
interests, becoming a standard for the internal and external relationship of
Localiza with its stakeholders, namely: shareholders, customers, employees,
suppliers, service providers, labor unions, competitors, society, government and
the communities in which it operates; and (iii) to ensure that the daily
concerns with efficiency, competitiveness and profitability do not override
ethical behavior.

     Our code of ethics complies with the provisions of the Sarbanes-Oxley Act
of 2002. A copy of our code of ethics is filed as an exhibit to this document.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     For the fiscal years ending December 31, 2003 and 2002, Deloitte Touche
Tohmatsu Auditores Independentes acted as independent auditor for Localiza and
Subsidiaries for the fiscal years ended December 31, 2003 and 2002, Deloitte &
Co. S.R.L. acted as independent auditor for MFA. In 2002, the aggregate of Audit
Services Fees billed by Deloitte Touche Tohmatsu Auditores Independentes to
Localiza and Subsidiaries and by Deloitte & Co. S.R.L. to MFA amounted to R$
182.9. In 2003, the aggregate of Audit Service Fees billed by Deloitte Touche
Tohmatsu Auditores Independentes to Localiza and Subsidiaries and by Deloitte &
Co. S.R.L. to MFA amounted to R$ 246.0. No other fees were billed to us by our
principal accountants for services provided in connection with fiscal years 2002
and 2003.

     "Audit Services Fees" consist of fees billed for professional services
rendered in connection with the audit of the Company's consolidated and
individual annual financial statements and annual regulatory filings thereon.


Pre-Approval Policies

     Under the Brazilian Corporation Law and its by-laws, Localiza is not
required to maintain and does not currently maintain a permanent audit
committee. Our board of directors approves our financial statements, the
performance by our auditors of audit and permissible non-audit services, and
associated fees, fulfilling the function of an audit committee.

     Our board of directors requires management to obtain the board's approval
before engaging independent auditors to provide any audit or permitted non-audit
services to us or our subsidiaries. Pursuant to this policy, our board of
directors pre-approves all audit and non-audit services provided by Deloitte
Touche Tohmatsu, our principal auditor.

                                       63
<PAGE>

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

     We have responded to Item 18 in lieu of responding to this Item.

ITEM 18. FINANCIAL STATEMENTS

                                                                            Page
Consolidated Financial Statements of Localiza Rent a Car S.A.:...............F-2
        Report of Deloitte Touche Tohmatsu Auditores Independentes dated
               April 2, 2004 for the fiscal year ending December 31, 2003....F-3
        Consolidated Balance Sheets at December 31, 2002 and 2003............F-4
        Consolidated Statements of Income and other comprehensive income
               (loss) for the Years Ended December 31, 2001, 2002 and 2003...F-6
        Consolidated Statements of Changes in Shareholders' Equity for the
               Years Ended December 31, 2001, 2002 and 2003..................F-7
        Consolidated Statements of Cash Flows for the Years Ended December
               31, 2001, 2002 and 2003.......................................F-8
        Notes to the Consolidated Financial Statements......................F-10

Consolidated Financial Statements of Localiza Franchising S.A.:.............F-54
        Report of Deloitte Touche Tohmatsu Auditores Independentes dated
               April 2, 2004 for the fiscal year ending December 31, 2003...F-55
        Consolidated Balance Sheets at December 31, 2002 and 2003...........F-56
        Consolidated Statements of Income for the Years Ended December 31,
               2001, 2002 and 2003..........................................F-58
        Consolidated Statements of Changes in Shareholders' Equity for the
               Years Ended December 31, 2001, 2002 and 2003.................F-59
        Consolidated Statements of Cash Flows for the Years Ended December
               31, 2001, 2002 and 2003......................................F-60
        Notes to the Consolidated Financial Statements......................F-62

Financial Statements of Localiza Master Franchisee Argentina S.A.:..........F-80
        Report of Deloitte & Co. S.R.L. dated March 12, 2004 for the
               fiscal year ending December 31, 2003.........................F-81
        Report of Independent Public Accountants for the Years Ended
               December 31, 2000 and 2001 (Pistrelli, Dyas y Associados, a
               former member of Andersen S/C)(1)............................F-82
        Balance Sheets at December 31, 2002 and 2003........................F-83
        Statements of Income for the Years Ended December 31, 2001, 2002
               and 2003.....................................................F-84
        Statements of Changes in Shareholders' Equity for the Years Ended
               December 31, 2001, 2002 and 2003.............................F-85
        Statements of Cash Flows for the Years Ended December 31, 2001,
               2002 and 2003................................................F-86
        Notes to the Financial Statements...................................F-88

--------------------------
(1)  Copy of a report issued by Pistrelli, Dyas y Associados, a former member of
     Andersen S/C on March 11, 2002.


ITEM 19. EXHIBITS

1.1  Charter and bylaws of Localiza Rent a Car S.A. (English translation)


                                       64
<PAGE>

1.2  Charter and bylaws of Total Fleet S.A. (English translation)1

1.3  Charter and bylaws of Localiza Franchising S.A. (English translation)

1.4  Charter and bylaws of Prime Prestadora de Servicos S.A. (English
     translation)

1.5  Charter and bylaws of Localiza Master Franchisee Argentina S.A. (English
     translation)2

8.1  List of significant subsidiaries

10.1 Consent of Deloitte Touche Tohmatsu Auditores Independentes as of December
     31, 2002 and 2003 and for the three years in the period ended December 31,
     2003 (Localiza)

10.2 Consent of Deloitte Touche Tohmatsu Auditores Independentes as of December
     31, 2002 and 2003 and for the three years in the period ended December 31,
     2003 (Franchising)

10.3 Consent of Deloitte & Co. S.R.L. as of December 31, 2002 and 2003 and for
     the two years in the period ended December 31, 2003 (MFA)

10.4 Letter from MFA regarding certain representations given by Andersen 3

10.5 Notice issued by MFA regarding consent of Andersen

11.1 Code of Ethics of Localiza Rent a Car S.A. and Subsidiaries

12.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Localiza)

12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Total Fleet)

12.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Franchising)

12.4 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Prime)

12.5 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (MFA)

13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Localiza)

13.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Total Fleet)

13.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Franchising)

13.4 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Prime)

13.5 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (MFA)

----------------------
1 Incorporated by reference to our Annual Report in Form 20-F for fiscal year
  ended December 31, 2001 (File No. 333-8128) filed with the SEC on June 28,
  2002.

2 Incorporated by reference to our Annual Report in Form 20-F for fiscal year
  ended December 31, 2002 (File No. 333-8128) filed with the SEC on June 30,
  2003.

3 Copy of a letter filed with the SEC on June 28,2002.

                                       65
<PAGE>


                                   Signatures

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrants certify that they meet all of the requirements for
filing on Form 20-F and have duly caused this annual report or amendment thereto
to be signed on their behalf by the undersigned, thereunto duly authorized.


                                  LOCALIZA RENT A CAR S.A.


                                  By: /s/ Jose Salim Mattar Junior
                                      -----------------------------------------
                                      Name:  Jose Salim Mattar Junior
                                      Title:  President

                                  By: /s/ Antonio Claudio Brandao Resende
                                      -----------------------------------------
                                      Name:  Antonio Claudio Brandao Resende
                                      Title:    Vice President



                                  TOTAL FLEET S.A.


                                  By:  /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title:  President

                                  By:  /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title:    Vice President



                                  LOCALIZA FRANCHISING S.A.


                                  By:  /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:   Jose Salim Mattar Junior
                                       Title:  President

                                  By:  /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title:    Vice President



                                  PRIME PRESTADORA DE SERVICOS S.A.


                                  By:  /s/ Jose Salim Mattar Junior
                                       -----------------------------------------
                                       Name:  Jose Salim Mattar Junior
                                       Title: President

                                  By:  /s/ Antonio Claudio Brandao Resende
                                       -----------------------------------------
                                       Name:  Antonio Claudio Brandao Resende
                                       Title:    Vice President

                                      66
<PAGE>


                                  LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.


                                  By:  /s/ Leonardo Federici Guedes
                                       -----------------------------------------
                                       Name:  Leonardo Federici Guedes
                                       Title: President



                                  By:  /s/ Aristides Luciano de Azevedo Newton
                                       -----------------------------------------
                                       Name: Aristides Luciano de Azevedo Newton
                                       Title: Substitute Officer

Dated: June 29, 2004


                                       67

<PAGE>


Index to consolidated financial statements
                                                                            Page
Consolidated Financial Statements of Localiza Rent a Car S.A.:...............F-2
        Report of Deloitte Touche Tohmatsu Auditores Independentes dated
               June 2, 2004 for the fiscal year ending December 31, 2003.....F-3
        Consolidated Balance Sheets at December 31, 2002 and 2003............F-4
        Consolidated Statements of Income for the Years Ended December 31,
               2001, 2002 and 2003...........................................F-6
        Consolidated Statements of Changes in Shareholders' Equity for the
               Years Ended December 31, 2001, 2002 and 2003..................F-7
        Consolidated Statements of Cash Flows for the Years Ended December
               31, 2001, 2002 and 2003.......................................F-8
        Notes to the Consolidated Financial Statements......................F-10

Consolidated Financial Statements of Localiza Franchising S.A.:.............F-54
        Report of Deloitte Touche Tohmatsu Auditores Independentes dated
               June 2, 2004 for the fiscal year ending December 31, 2003....F-55
        Consolidated Balance Sheets at December 31, 2002 and 2003...........F-56
        Consolidated Statements of Income for the Years Ended December 31,
               2001, 2002 and 2003..........................................F-58
        Consolidated Statements of Changes in Shareholders' Equity for the
               Years Ended December 31, 2001, 2002 and 2003.................F-59
        Consolidated Statements of Cash Flows for the Years Ended December
               31, 2001, 2002 and 2003......................................F-60
        Notes to the Consolidated Financial Statements......................F-62

Financial Statements of Localiza Master Franchisee Argentina S.A.:..........F-80
        Report of Deloitte & Co. S.R.L. dated March 12, 2004 for the
               fiscal year ending December 31, 2003.........................F-81
        Report of Independent Public Accountants for the Years Ended
               December 31, 2000 and 2001 (Pistrelli, Dyas y Associados, a
               former member of Andersen S/C)(1)............................F-82
        Balance Sheets at December 31, 2002 and 2003........................F-83
        Statements of Income for the Years Ended December 31, 2000, 2001
               and 2002.....................................................F-84
        Statements of Changes in Shareholders' Equity for the Years Ended
               December 31, 2000, 2001 and 2002.............................F-85
        Statements of Cash Flows for the Years Ended December 31, 2000,
               2001 and 2002................................................F-86
        Notes to the Financial Statements...................................F-88

--------------------------
(1)  Copy of a report issued by Pistrelli, Dyas y Associados, a former member of
     Andersen S/C on March 11, 2002.


<PAGE>


Localiza Rent a Car S.A. and Subsidiaries

Financial Statements Together with Report of Independent Registered Public
Accounting Firm

Expressed in Brazilian reais

As of December 31, 2002 and 2003 and for the three
years in the period ended December 31, 2003

Deloitte Touche Tohmatsu Auditores Independentes


<PAGE>


Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
Localiza Rent a Car S.A.
Belo Horizonte - MG


1.   We have audited the accompanying consolidated balance sheets of Localiza
     Rent a Car S.A., (the "Company"), a Brazilian corporation, as of December
     31, 2002 and 2003 and the related consolidated statements of income and
     comprehensive income, changes in shareholders' equity and cash flows for
     each of the three years in the period ended December 31, 2003, all
     expressed in Brazilian reais. These financial statements are the
     responsibility of the Company's management. Our responsibility is to
     express an opinion on these financial statements based on our audits.

2.   We conducted our audits in accordance with the standards of the Public
     Company Accounting Oversights Board (United States). Those standards
     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. An audit also includes
     assessing the accounting principles used and significant estimates made by
     management, as well as evaluating the overall financial statement
     presentation. We believe that our audits provide a reasonable basis for our
     opinion.

3.   In our opinion, the consolidated financial statements referred to above
     present fairly, in all material respects, the consolidated financial
     position of Localiza Rent a Car S.A. as of December 31, 2002 and 2003, and
     the results of its operations and cash flows for each of the three years in
     the period ended December 31, 2003, in conformity with accounting
     principles generally accepted in the United States of America.

4.   Our audits also comprehended the translation of Brazilian reais amounts
     into U.S. dollar amounts as of and for the year ended December 31, 2003
     and, in our opinion, such translation has been made in conformity with the
     basis stated in Note 2 (d). Such U.S. dollar amounts are presented solely
     for the convenience of readers in the United States of America.



April 2, 2004

/s/ Deloitte Touche Tohmatsu


<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
A  S  S  E  T  S                                                      December 31,
----------------                                    --------------------------------------------
                                                        2002            2003            2003
                                                    -------------   -------------   ------------
                                                         R$              R$              US$
                                                    -------------   -------------   ------------
<S>                                                 <C>             <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                            71,391         159,264         55,124
    Available for sale marketable securities             11,078               -              -
    Accounts receivable, net                             51,074          46,899         16,233
    Revenue-earning vehicles, net                       263,404         278,409         96,362
    Deferred income tax and social contribution           1,585           2,909          1,007
    Other                                                 5,922           8,974          3,106
                                                    -------------   -------------   ------------
                                                        404,454         496,455        171,832
                                                    -------------   -------------   ------------
NONCURRENT ASSETS:
    Revenue-earning vehicles, net                        87,034         110,452         38,229
    Escrow deposits                                      18,975          19,235          6,657
    Deferred income tax and social contribution          33,477          12,486          4,322
    Other                                                 2,805             490            170
                                                    -------------   -------------   ------------
                                                        142,291         142,663         49,378
                                                    -------------   -------------   ------------

PROPERTY AND EQUIPMENT, NET                              15,126          18,581          6,431
                                                    -------------   -------------   ------------

GOODWILL                                                  4,704           4,704          1,628
                                                    -------------   -------------   ------------

TOTAL ASSETS                                            566,575         662,403        229,269
                                                    =============   =============   ============
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                       F-4
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  - DECEMBER 31, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY                                December 31,
------------------------------------                 ------------   -----------   ----------
                                                         2002          2003          2003
                                                     ------------   -----------   ----------
                                                          R$            R$            US$
                                                     ------------   -----------   ----------
<S>                                                  <C>            <C>           <C>
CURRENT LIABILITIES:
    Loans and financing                                       -         8,309        2,876
    Interest payable on long-term debt                    6,616         5,410        1,872
    Accounts payable                                     18,818        81,670       28,267
    Payroll and related charges                          10,067        11,562        4,002
    Income tax and social contribution                      460           954          330
    Taxes, other than on income                           3,550         4,576        1,584
    Deferred income tax and social contribution           7,302         6,356        2,200
    Advances from customers                               3,878         4,847        1,678
    Other                                                   615         1,118          387
                                                     ------------   -----------   ----------
                                                         51,306       124,802       43,196
                                                     ------------   -----------   ----------
NONCURRENT LIABILITIES:
    Long-term debt                                      261,111       213,512       73,900
    Unrealized loss on derivatives (Note 18)             12,031        19,072        6,601
    Reserve for contingencies                            35,847        45,727       15,827
    Deferred income tax and social contribution           9,983        14,440        4,998
    Other                                                 1,583         1,617          560
                                                     ------------   -----------   ----------
                                                        320,555       294,368      101,886
                                                     ------------   -----------   ----------

MINORITY INTEREST                                            92            17            6
                                                     ------------   -----------   ----------

SHAREHOLDERS' EQUITY:
    Capital stock                                       135,723       153,693       53,196
    Accumulated earnings                                 59,374        89,523       30,985
    Accumulated other comprehensive loss                   (475)            -            -
                                                     ------------   -----------   ----------
                                                        194,622       243,216       84,181
                                                     ------------   -----------   ----------

TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY                                            566,575       662,403      229,269
                                                     ============   ===========   ==========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-5
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS) FOR THE
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003 (Stated in thousands of Brazilian
reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
                                                                             Year ended December 31,
                                                            -------------------------------------------------------
                                                               2001            2002          2003          2003
                                                            -----------    ------------  ------------  ------------
                                                                R$              R$            R$            US$
                                                            -----------    ------------  ------------  ------------
<S>                                                         <C>            <C>           <C>           <C>
NET REVENUES:
    Car rental                                                 144,253        162,595       155,291        53,749
    Fleet management                                           120,229        118,782       120,309        41,641
    Franchising                                                  5,056          5,111         5,456         1,888
    Used car sales                                             150,907        190,476       250,978        86,868
                                                            -----------    ------------  ------------  ------------
       Total net revenues                                      420,445        476,964       532,034       184,146
                                                            -----------    ------------  ------------  ------------

EXPENSES AND COSTS:
    Direct operating                                           (77,059)       (88,858)      (91,485)      (31.665)
    Cost of used car sales                                    (118,655)      (156,270)     (206,579)      (71,500)
    Taxes on revenues                                          (17,795)       (19,578)      (16,337)       (5,655)
    Selling, general, administrative and other                 (52,438)       (62,482)      (65,402)      (22,637)
    Depreciation of vehicles                                   (43,995)       (31,062)      (37,222)      (12,883)
    Goodwill amortization                                       (1,499)             -             -             -
    Other depreciation and amortization                         (2,634)        (3,426)       (3,841)       (1,329)
                                                            -----------    ------------  ------------  ------------
       Total operating expenses and costs                     (314,075)      (361,676)     (420,866)     (145,669)
                                                            -----------    ------------  ------------  ------------
       Operating income                                        106,370        115,288       111,168        38,477
                                                            -----------    ------------  ------------  ------------

FINANCIAL (EXPENSES) INCOME, NET                               (50,464)       (82,814)       40,677        14,079
OTHER NONOPERATING (EXPENSES) INCOME, NET                        4,475           (125)           97            34
                                                            -----------    ------------  ------------  ------------
       Income before taxes and minority interest                60,381         32,349       151,942        52,590
                                                            -----------    ------------  ------------  ------------

INCOME TAX AND SOCIAL CONTRIBUTION:
    Current                                                    (14,107)       (19,190)      (23,256)       (8,049)
    Deferred                                                    (2,386)        13,605       (22,940)       (7,940)
                                                            -----------    ------------  ------------  ------------
                                                               (16,493)        (5,585)      (46,196)      (15,989)
                                                            -----------    ------------  ------------  ------------
       Income before minority interest                          43,888         26,764       105,746        36,601

MINORITY INTEREST                                                    -           (115)         (106)          (37)
                                                            -----------    ------------  ------------  ------------
       Income before cumulative effect of change in
         accounting principle                                   43,888         26,649       105,640        36,564
     Cumulative effect of a change in accounting
        principle, net of taxes of R$467 (Note 3 i)               (907)             -             -             -
                                                            -----------    ------------  ------------  ------------
       Net income                                               42,981         26,649       105,640        36,564
                                                            ===========    ============  ============  ============

OTHER COMPREHENSIVE INCOME (LOSS):
    Total change in market value of marketable securities       15,753            269           501           173
    Reclassification adjustment of realized (gains) losses     (15,737)        (1,566)          219            76
                                                            -----------    ------------  ------------  ------------
    Unrealized/realized gains (losses) on marketable
       securities                                                   16         (1,297)          720           249
    Deferred income tax and social contribution
       on unrealized gains (losses)                                 (5)           436          (245)          (85)
                                                            -----------    ------------  ------------  ------------
    Other comprehensive income (loss)                               11           (861)          475           164
                                                            -----------    ------------  ------------  ------------
       Comprehensive income                                     42,992         25,788       106,115        36,728
                                                            ===========    ============  ============  ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------



                                      F-6
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


<TABLE>
                                                                                     Accumulated
                                                                                        other
                                                         Capital     Accumulated    comprehensive
                                                          stock        earnings     income (loss)      Total
                                                       ----------    -----------    -------------    ----------

<S>                                                    <C>           <C>            <C>              <C>
BALANCES AT DECEMBER 31, 2000                            117,523         46,156              375      164,054
   Cash dividends  (Note 20 b)                                 -        (15,000)               -      (15,000)
   Interest on capital (Note 20 c)                             -         (6,353)               -       (6,353)
   Capital increase (Note 20 c)                            5,400              -                -        5,400
   Net income                                                  -         42,981                -       42,981
   Other comprehensive income                                  -              -               11           11
                                                       ----------    -----------    -------------    ----------
BALANCES AT DECEMBER 31, 2001                            122,923         67,784              386      191,093
   Cash dividends  (Note 20 b)                                 -        (20,000)               -      (20,000)
   Interest on capital (Note 20 c)                             -        (15,059)               -      (15,059)
   Capital increase (Note 20 c)                           12,800              -                -       12,800
   Net income                                                  -         26,649                -       26,649
   Other comprehensive loss                                    -              -             (861)        (861)
                                                       ----------    -----------    -------------    ----------
BALANCES AT DECEMBER 31, 2002                            135,723         59,374             (475)     194,622
   Cash dividends  (Note 20 b)                                 -        (54,350)               -      (54,350)
   Interest on capital (Note 20 c)                             -        (21,141)               -      (21,141)
   Capital increase (Note 20 c)                           17,970              -                -       17,970
   Net income                                                  -        105,640                -      105,640
   Other comprehensive income                                  -              -              475          475
                                                       ----------    -----------    -------------    ----------
BALANCES AT DECEMBER 31, 2003                            153,693         89,523                -      243,216
                                                       ===========  =============  ===============  ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------



                                      F-7
<PAGE>


                                                                             1/2
LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
                                                                                   Year ended December 31,
                                                               -------------------------------------------------------------
                                                                    2001             2002            2003           2003
                                                               --------------     -----------     ----------     -----------
                                                                     R$               R$              R$             US$
                                                               --------------     -----------     ----------     -----------
<S>                                                            <C>                <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                         42,981          26,649        105,640          36,564
     Adjustments to reconcile net income to net cash provided
      by (used in) operating activities:
          Depreciation and amortization (including goodwill)          48,128          34,488         41,063          14,212
          Vehicles written-off as a result of theft                    2,493           2,041          1,540             533
          Deferred income taxes                                        2,386         (13,605)        22,940           7,940
          Provision for doubtful accounts                              1,102           1,436           (128)            (44)
          Reversal of compulsory loans, net                              383               -              -               -
          Gain on sale of land                                        (4,639)              -              -               -
          Provision for contingencies                                  8,099          13,682         15,537           5,378
          Realized gains (losses) on sale of marketable
               securities                                            (15,737)         (1,566)           219              76
          Realized gains on derivatives                               (6,722)         (1,891)             -               -
          Exchange variation, net                                     29,328          85,044        (46,896)        (16,231)
          Unrealized (gain) loss on derivatives                       26,235         (14,204)         7,016           2,428
          Other                                                          282             307           (454)           (158)

(Increase) decrease in operating assets:
   Accounts receivable                                               (19,741)         (3,043)         5,946           2,058
   Revenue-earning vehicles-
           New acquisitions                                         (247,527)       (215,604)      (288,361)        (99,806)
           Cost of used car sales                                    121,381         164,846        211,176          73,092
   Escrow deposits                                                    (2,356)         (1,355)          (260)            (90)
   Accrued interest income on marketable securities                   (1,465)          1,978           (759)           (263)
   Compulsory loans                                                    1,597               -              -               -
   Other                                                               9,985           8,083         (2,440)           (845)

Increase (decrease) in operating liabilities:
   Accounts payable                                                    5,834          (5,500)        62,852          21,754
   Payroll and related charges                                         1,238           1,382          1,495             518
   Income tax and social contribution                                 (1,362)            246            494             171
   Taxes, other than on income                                        (2,066)          2,154          1,026             355
   Advances from customers                                             2,617             789            969             335
   Reserve for contingencies                                          (2,224)         (4,872)        (5,657)         (1,958)
   Loans and debt - accrued interest expense, net                        (51)          2,086           (660)           (228)
   Other                                                                (514)           (220)           322             111
                                                               --------------     -----------     ----------     -----------
Net cash provided by (used in) operating activities                     (335)         83,351        132,620          45,902
                                                               --------------     -----------     ----------     -----------
</TABLE>



                                      F-8
<PAGE>


                                                                             2/2

<TABLE>
                                                                                   Year ended December 31,
                                                               -------------------------------------------------------------
                                                                    2001             2002            2003           2003
                                                               --------------     -----------     ----------     -----------
                                                                     R$               R$              R$             US$
                                                               --------------     -----------     ----------     -----------
<S>                                                            <C>                <C>             <C>            <C>
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
    Purchases of marketable securities                               (16,733)         (5,717)             -               -
    Proceeds from sales of marketable securities                      61,365          13,210         11,798           4,083
    Additions to property and equipment, net                          (7,246)         (6,018)        (7,296)         (2,525)
    Acquisitions of former franchisees                                (1,329)              -              -               -
                                                               --------------     -----------     ----------     -----------
Net cash provided by investing activities                             36,057           1,475          4,502           1,558
                                                               --------------     -----------     ----------     -----------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
    Short-term loans:
       Proceeds                                                      113,837          39,186         57,454          19,886
       Repayments                                                   (120,057)        (66,381)       (49,182)        (17,023)
    Transaction with related parties:
       Capital increase                                                5,400          12,800         17,970           6,220
       Cash dividends                                                (15,000)        (20,000)       (54,350)        (18,812)
       Interest on capital                                            (6,353)        (15,059)       (21,141)         (7,317)
                                                               --------------     -----------     ----------     -----------
Net cash used in financing activities                                (22,173)        (49,454)       (49,249)        (17,046)
                                                               --------------     -----------     ----------     -----------

NET INCREASE  IN CASH AND CASH EQUIVALENTS                            13,549          35,372         87,873          30,414

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                                           22,470          36,019         71,391          24,710
                                                               --------------     -----------     ----------     -----------

CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                                              36,019          71,391        159,264          55,124
                                                               ==============     ===========     ==========     ===========

Supplemental disclosures of cash flow information:

Cash paid during the year for:
    Interest                                                          27,542          22,514         24,435           8,457
    Income tax and social contribution                                16,816          15,993         24,083           8,336
                                                               --------------     -----------     ----------     -----------
                                                                      44,358          38,507         48,518          16,793
                                                               ==============     ===========     ==========     ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------



                                      F-9
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(Amounts expressed in thousands of Brazilian reais and U.S. dollars, unless
otherwise indicated)
--------------------------------------------------------------------------------


1.   THE COMPANY AND ITS OPERATIONS

     Localiza Rent a Car S.A. (the "Company" or "Localiza") is a Brazilian
     closely-held corporation organized under the laws of the Federative
     Republic of Brazil and based in Belo Horizonte, State of Minas Gerais. The
     Company is controlled by four of its senior executives ("Founders") and
     eleven Donaldson, Lufkin & Jenrette ("DLJ") funds, which have been managed
     by Credit Suisse First Boston ("CSFB") since August 2000.

     On March 26, 1997, DLJ entities acquired 33.33% of the common stock of the
     Company.

     On June 30, 1998, Localiza merged its holdings PAR-LIZA Ltda. and LIZA-PAR
     S.A. (the DLJ affiliates). See Note 1 (a).

     As part of the Senior Notes program (Note 14), the Company has registered
     with Securities and Exchange Commission ("SEC") in the United States of
     America, on March 10, 1998.

     The Company operates in four complementary businesses: car rental, fleet
     management, used car sales and franchising.

     As of December 31, 2003, the Localiza network, including Brazilian and
     international franchisees, comprises 309 - unaudited (320 - unaudited in
     2002) locations: 245 (unaudited) locations in Brazil and 64 (unaudited)
     locations in 7 countries in Latin America. Localiza operates directly 71
     (unaudited) locations in Brazil and the remaining locations in Brazil are
     operated by franchisees under contract with Localiza Franchising S.A.
     ("Franchising"), a subsidiary of the Company. The locations in other Latin
     America countries were operated by franchisees under contracts with Master
     Franchisee Argentina S.A. ("MFA"), a subsidiary of the Franchising.
     Franchising charges initial fees to franchisees as well as monthly royalty
     fees and additional fees to reimburse advertising expenses incurred to
     promote Localiza's brand name and businesses.

     As of December 31, 2003, in accordance with management controls, the fleet
     comprises approximately 29,000 - unaudited vehicles (29,366 - uanudited in
     2002), of which the Company owned approximately 22,355 (22,845 in 2002),
     including 9,765 (10,427 in 2002) vehicles from the fleet management
     segment, approximately 5,700- unaudited (5,405 - unaudited in 2002) are
     owned by Brazilian franchisees and the remaining are owned by international
     franchisees. Localiza usually renews its car rental fleet after 12 months.
     A significant portion of the company-owned fleet is sold to final consumers
     through 15 used car sales locations in 15 major Brazilian cities.



                                      F-10
<PAGE>


     Total Fleet S.A. ("Total Fleet"), a wholly-owned subsidiary of the Company
     operates the fleet management business. The lease period for new cars
     varies from 12 to 48 months with an average of 36 months. The contracts can
     be canceled with a 30-day advance notice and payment of charges equivalent
     to 15% to 35% of the contracts' remaining payments, depending on terms and
     renewal covenants.

     The management fleet services, which include maintenance, insurance,
     replacement among others, are contracted in accordance with clients'
     definitions.

     Total Fleet provides national maintenance and technical assistance to the
     customers through contracted service providers.


     (a)  Change of subsidiaries into closely-held corporations

     As of May 1, 2003, the subsidiaries Prime Prestadora de Servicos S/C Ltda.
     and Localiza Franchising Ltda. were changed into closely-held corporations
     and were renamed to Prime Prestadora de Servicos S.A. ("Prime") and
     Localiza Franchising S.A. ("Franchising"). The Franchising's participation
     of 0.01% in Prime was sold to Localiza by book value, which now holds 100%
     of the Company.

     (b)  Increases and decreases in subsidiaries' capital stock

     On July 7, 2003, the Company increased capital in Prime in the amount of
     R$800.

     On May 1, 2003, the Company reduced capital in Franchising in the amount of
     R$925, keeping the minority shareholders' proportion.

     On July 31, 2002, MFA had its capital reduced by ARP172 thousand
     ("Argentine pesos") to resettle the proportion between capital and
     accumulated deficits in compliance with the Article No. 205 of the
     Argentine Law No. 19.550.

     (c)  Franchising spin-off

     On March 31, 2004, Franchising was spun-off and generated a new company
     named Localiza Franchising Brasil S.A., currently responsible for the
     Brazilian franchising operations. Localiza Franchising just maintained
     recorded in its books the investment in MFA. The spun-off was made based on
     the book value.

     (d)  Acquisition and merger of franchisees

     In the second semester of 2000, Localiza began to operate directly in areas
     that were formerly operated by franchisees in the State of Santa Catarina
     and the cities of Uberlandia and Uberaba in the State of Minas Gerais. In
     June 2001, Localiza began to operate in the area formerly operated by its
     franchisees in the cities of Londrina and Maringa in the State of Parana.

     This process involved the acquisition and subsequent merger of spun-off
     companies of former franchisees Auto Locadora Coelho Ltda. (Auto Locadora
     Locar - "Locar"), which



                                      F-11
<PAGE>


     operates in the State of Santa Catarina; Monza Autolocadora Ltda. (Auto
     Locadora Locare - "Locare"), which operates in the cities of Uberlandia and
     Uberaba within the State of Minas Gerais and Locadora Marajo Ltda.
     (Londrina Locadora Ltda. - "Londrina"), which operates in the cities of
     Londrina and Maringa within the State of Parana.

     The acquisition of Locar for R$4,000 resulted in the recognition of
     goodwill in the amount of R$2,800. The remaining purchase price was
     allocated to cash equivalents and other current assets.

     Goodwill generated in the acquisition of Locare for R$5,476 amounted to
     R$1,585. In addition, the market value of vehicle fleet exceeded the book
     value by R$1,813, which was allocated to the cost of the fleet purchased
     and has been depreciated according to the remaining useful life of such
     fleet. The remaining purchase price was allocated to cash equivalents and
     other current assets.

     The acquisition of Londrina for R$1,875 resulted in the recognition of
     goodwill in the amount of R$1,329. The remaining purchase price was
     allocated to accounts receivables.


2.   BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

     (a)  Accounting records

     The Company's accounting records are maintained in Brazilian reais (R$),
     based on the criteria enacted by Brazilian Corporate Law, which provided a
     simplified mechanism of accounting for the effects of inflation up to
     December 31, 1995. The financial statements prepared based on such
     accounting records and the Corporate Law criteria (Corporate Law Method
     financial statements) are the basis for determining income taxes and
     shareholders' rights, such as the computation of dividends.

     The accounting records of MFA are maintained in Argentine Pesos (ARP) and
     translated to Brazilian reais at the exchange rate at the end of each
     balance sheet date, except for December 31, 2001, when the exchange rate
     used represented the first free-floating rate for which transactions could
     be settled after December 31, 2001. Such exchange rate was calculated by
     converting Pesos to U.S. dollars at a rate of $1.70 to US$1.00 and then to
     Brazilian reais at a rate of R$2.3204 to US$1.00. For all periods presented
     the effects of translation were immaterial.


     (b)  Price-level adjusted financial statements

     All financial information for periods ended after June 30, 1997 are
     presented at amounts price-level adjusted as of June 30, 1997, with any
     subsequent transactions included in nominal Brazilian reais. Effective July
     1, 1997, the Company ceased adjusting its financial statements to recognize
     certain effects of changes in the purchasing power of Brazilian currency
     due to inflation, as Brazil ceased to be considered a highly inflationary
     economy as of such date.



                                      F-12
<PAGE>


     (c)  Presentation of consolidated financial statements

     The financial statements have been prepared in accordance with accounting
     principles generally accepted in the United States of America, which differ
     in certain aspects from the accounting principles applied by the Company
     and its subsidiaries in their financial statements prepared in accordance
     with accounting principles generally accepted in Brazil and Argentina or
     for other statutory purposes in Brazil and Argentina.

     (d)  Convenience translation of balances from Brazilian reais to U.S.
          dollars

     The accompanying consolidated financial statements in Brazilian reais were
     translated into U.S. dollars at the rate of R$2.8892 to US$1.00, the
     selling Commercial Market exchange rate reported by the Central Bank of
     Brazil, for December 31, 2003. Such translation was made solely for the
     convenience of the readers and should not be construed as a representation
     that the Brazilian reais amounts could have been converted into U.S.
     dollars at this or any other rate.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements were prepared in conformity with
     accounting principles generally accepted in the United States of America,
     based on the following accounting policies:

     (a)  Consolidation - The consolidated financial statements include the
          accounts of Localiza and its subsidiaries Total Fleet, Prime,
          Franchising and MFA. All significant intercompany balances and
          transactions have been eliminated in consolidation.

     (b)  Cash and cash equivalents - Stated at cost or invested amount plus
          accrued interest up to the balance sheet dates.

     (c)  Allowance for doubtful accounts - Provided in an amount considered
          sufficient to cover eventual losses on accounts receivable,
          considering past experience, the current financial situation of the
          Company's customers and the status of past-due receivables.

     (d)  Marketable securities - Available for sale marketable securities are
          reported at fair value, with unrealized gains and losses excluded from
          earnings and reported in a separate component of shareholders' equity.
          Realized gains on sales of marketable securities are recorded in
          earnings as financial income.

     (e)  Revenue-earning vehicles - Comprised of car rental and fleet
          management vehicles, stated at acquisition cost, less accumulated
          depreciation. Depreciation is computed based on annual rates that are
          intended to measure the reduction necessary to approximate a vehicle's
          market value (determined by manufacturer, model and acquisition date)
          at the end of the estimated average holding period of the vehicle and
          also includes the selling costs of the vehicle. The average annual
          rates of depreciation applied for 2001, 2002 and 2003 were 12.3%, 7.8%
          and 8.8%, respectively. The Company and its subsidiary Total Fleet, in
          order to reflect the higher depreciation of the



                                      F-13
<PAGE>


          vehicles during their earlier useful lives, adopted the
          sum-of-the-years-digits method, computed on a quarterly basis for all
          periods presented.

          The Company periodically evaluates the carrying value of its
          long-lived assets for impairment. The carrying value of a long-lived
          asset is considered impaired by the Company when the anticipated
          undiscounted cash flow from such asset is separately identifiable and
          less than its carrying value. In that event, a loss would be
          recognized based on the amount by which the carrying value exceeds the
          fair market value of the long-lived asset. Fair market value is
          determined primarily using discounted anticipated cash flows. No
          impairment losses have been recorded for any of the periods presented.

     (f)  Property and equipment - Stated at price-level adjusted acquisition
          cost for periods prior to June 30, 1997. Depreciation is calculated
          using the straight-line method at the annual rate of 20% for
          computers, 4% for buildings and 10% for other items. Leasehold
          improvements are amortized over the lower of the estimated useful life
          of the related asset or the term of the rental contracts.

     (g)  Auto liability claims, property damage and theft - The Company and its
          subsidiary Total Fleet accrues for possible bodily injury and death
          claims based on legal counsel's opinion of the eventual outcome of
          claims existing at period end. The Company does not contract insurance
          for the risks involving vehicle collision damage and theft; losses are
          recorded as incurred. Historically, losses have not been significant
          to the operations. Management does not expect material losses in the
          future, based on industry experience in Brazil.

     (h)  Income tax and social contribution - The Company accounts for income
          taxes under the provisions of SFAS No. 109, "Accounting for Income
          Taxes", which requires the application of the comprehensive liability
          method of accounting for income taxes. SFAS No. 109 requires
          recognition of deferred tax assets and liabilities for the estimated
          future tax consequences of events attributable to differences between
          the financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases, and operating loss and
          tax credit carryforwards.

          Deferred tax assets and liabilities are measured using enacted tax
          rates in effect for the year in which those temporary differences are
          expected to be recovered or settled. Under SFAS No. 109, the effect
          on deferred tax assets and liabilities of changes in tax rates is
          recognized in income for the period that includes the enactment date.

          Deferred tax assets are reduced through the recognition of a valuation
          allowance, as appropriate, if, based on the weight of available
          evidence, it is more likely than not that the deferred tax asset will
          not be realized.

          (i) Derivative instruments - As of January 1, 2001, the Company
          adopted SFAS No.133, "Accounting for Derivative Instruments and
          Hedging Activities" (SFAS No.133), which was issued in June 1998 and
          amended by SFAS No.137, "Accounting for Derivative Instruments and
          Hedging Activities-Deferral of the Effective Date of FASB Statement
          No.133" and SFAS No.138, "Accounting for Derivative Instruments and
          Certain Hedging Activities", and SFAS No.149, "Amendment of Statement
          No.133 on Derivative Instruments and Hedging Activities. As a result
          of adoption of SFAS No.133, the



                                      F-14
<PAGE>


          Company recognizes its derivatives on the balance sheet at fair value
          and adjustments to fair value are recorded through income under the
          financial expenses caption. Prior to adoption of SFAS No.133, the
          Company recognized its derivatives on the balance sheet at contract
          value and adjustments to contract value were recorded through income
          under the financial expense caption. The Company accounted for the
          accounting change as a cumulative effect of a change in an accounting
          principle. The adoption of SFAS No.133 resulted in a cumulative
          effect of accounting change of R$907, net of applicable income tax
          and social contribution expense of R$467, which was recorded as an
          expense in the consolidated statement of income for the year ended
          December 31, 2001.

     (j)  Assets and liabilities denominated in foreign currencies or subject to
          monetary restatement - Assets and liabilities denominated in foreign
          currencies are adjusted based on the exchange rate reported by the
          Central Bank of Brazil at each balance sheet date. Those denominated
          in Brazilian reais, and contractually or legally subject to
          indexation, are restated at the balance sheet dates by using the
          related index. Exchange gains and losses and monetary variation gains
          and losses are recorded in the profit and loss account.

     (k)  Revenues and expenses - Revenues from vehicle rentals are recognized
          as earned on a daily basis under the related rental contracts with
          customers. Revenues from fleet rentals principally result from
          operating leases with fixed monthly payments and are recognized as
          earned on a monthly basis over the term of the lease. Revenues from
          used car sales are recorded upon delivery of the used cars. Revenues
          from franchise fees are generally based on a percentage of franchisee
          rental revenue and are recognized as earned on a monthly basis.
          Initial franchise fees are recognized upon substantial completion of
          all material services and conditions of the franchise sale, which
          coincides with the date of sale and commencement of operations by the
          franchisee. Franchising expenses include reservations, information
          systems and other services to franchisees. Expenses are recorded as
          incurred.

     (l)  Advertising costs - Advertising costs are expensed when incurred. No
          advertising costs have been deferred at the balance sheet dates
          herein. Advertising costs amounted to R$7,737, R$9,648 and R$9,263 for
          the years ended December 31, 2001, 2002 and 2003, respectively.

     (m)  Use of estimates - The preparation of consolidated financial
          statements in accordance with accounting principles generally accepted
          in the United States of America requires that the Company's management
          make estimates and use assumptions that affect the reported amounts of
          assets, liabilities and disclosures of contingent assets and
          liabilities as of the dates of the consolidated financial statements
          and the reported amounts of revenues, costs and expenses during the
          reporting periods. Significant estimates are used when accounting for
          allowance for doubtful accounts, fair value of marketable securities,
          depreciation of revenue-earning vehicles, goodwill, income taxes,
          including recognition of valuation allowances, contingencies and stock
          option plan, among others. Although these estimates are based on
          management's knowledge of current events and actions that may be
          undertaken in the future, actual results may differ from the estimates
          included in these consolidated financial statements.



                                      F-15
<PAGE>


     (n)  Interest on capital - Interests paid to shareholders', calculated in
          accordance with Law No. 9.249/95, were recorded in the Company's
          books in the income statement under financial expenses, as determined
          by tax legislation. For presentation in the consolidated financial
          statements, interests paid were presented as a charge to retained
          earnings.

     (o)  Constant currency presentation - In addition to the accounting
          practices described above, the following practices were adopted in the
          preparation of constant currency financial statements:

          i.   Index - Through December 31, 1995, the financial statements were
               price-level adjusted based on the variation of UFIR (Inflation
               index for tax purposes). From January 1, 1996, through June 30,
               1997, the financial statements were price-level adjusted based on
               the variation of the IGP-M (General Price Index of the Market).

          ii.  Nonmonetary assets and liabilities - Property and equipment,
               shareholders' equity and other nonmonetary assets and liabilities
               accounts were restated from the date the original transactions
               occurred to June 30, 1997. Income tax and social contribution
               effects were accrued in respect of the increase in shareholders'
               equity due to the recognition of the effects of inflation.


4.   CASH AND CASH EQUIVALENTS

                                                        December 31,
                                         ---------------------------------------
                                             2002           2003         2003
                                         -----------     ---------     ---------
                                              R$             R$           US$
                                         -----------     ---------     ---------

     Cash                                     8,076        10,783         3,732
     Cash equivalents:
         Federal treasury bonds               3,634         9,480         3,281
         Bank certificates of deposit        59,681       139,001        48,111
                                         -----------     ---------     ---------
                                             71,391       159,264        55,124
                                         ===========     =========     =========

     As of December 31, 2002 and 2003, cash equivalents are highly liquid
     investments that are readily convertible to known amounts of cash without
     any penalty or loss of market rate interest. All of these investments are
     remunerated based on the Interbank Deposit Certificate (CDI).


5.   MARKETABLE SECURITIES

     As of December 31, 2003, the Company does not have investments in
     marketable securities.

     As of December 31, 2002, marketable securities represented Brazilian
     Central Bank Notes (NBC-E's). The Notes were U.S. dollar denominated and
     accrued average interest of 6.87%. Based on management's investment
     strategy, marketable securities were classified as "available-for-sale"
     securities, as defined by Statement of Accounting Standards No. 115,



                                      F-16
<PAGE>


     "Accounting for Certain Investments in Debt and Equity Securities". As of
     December 31, 2002, the securities were marked to market, with unrealized
     loss of R$720, classified as Other Comprehensive Income or Loss.

     The NBC-E Notes had contractual maturities in April 17 and July 17, 2003.
     The Company determined the cost of the NBC-E sold based on specific
     identification and recorded a gain of R$501.

6.   ACCOUNTS RECEIVABLE, NET

                                                        December 31,
                                          -------------------------------------
                                             2002          2003         2003
                                          ----------     ---------    ---------
                                              R$            R$           US$
                                          ----------     ---------    ---------

     Car rental and fleet management         46,082        39,731       13,751
     Used car sales                          10,948        11,221        3,884
     Franchising                              1,385         1,517          525
                                          ----------     ---------    ---------
                                             58,415        52,469       18,160
     Allowance for doubtful accounts         (5,591)       (5,463)      (1,891)
                                          ----------     ---------    ---------
                                             52,824        47,006       16,269
     Noncurrent assets                       (1,750)         (107)         (36)
                                          ----------     ---------    ---------
     Current assets                          51,074        46,899       16,233
                                          ==========     =========    =========

     The long-term receivable amount is recorded as other noncurrent assets.


7.   REVENUE-EARNING VEHICLES, NET

     Represented by vehicles used in car rental and fleet management operations
     and vehicles to be sold as follows:

                                                        December 31,
                                          -------------------------------------
                                             2002          2003         2003
                                          ----------     ---------    ---------
                                              R$            R$           US$
                                          ----------     ---------    ---------
     Vehicles for sale:
         Cost                                19,088        40,664       14,074
         Accumulated depreciation            (1,939)       (4,243)      (1,468)
                                          ----------     ---------    ---------
                                             17,149        36,421       12,606
     Revenue-earning vehicles:
         Cost                               381,589       404,310      139,938
         Accumulated depreciation           (48,300)      (51,870)     (17,953)
                                          ----------     ---------    ---------
                                            333,289       352,440      121,985
                                          ----------     ---------    ---------
                                            350,438       388,861      134,591
     Current assets                        (263,404)     (278,409)     (96,362)
                                          ----------     ---------    ---------
     Noncurrent assets                       87,034       110,452       38,229
                                          ==========     =========    =========



                                      F-17
<PAGE>


     Operating vehicles are classified as current assets when the respective
     replacement and sale are expected to occur within 12 months, and as
     noncurrent assets, when the vehicles are expected to be replaced and sold
     after this 12-month period.

     Management periodically reviews estimate residual values for adequacy based
     on the changes of the projected sales price and estimated holding period of
     the vehicles. During 2001, 2002 and 2003, the projected sales prices of the
     Company's vehicles were reviewed, resulting in changes in management's
     estimate of the residual values of the vehicles. The impact of the change
     in estimate of residual values on depreciation expense for revenue earning
     vehicles in 2003 was a decrease of approximately R$13,400 (R$21,600 in 2002
     and R$12,000 in 2001). Maintenance and repair expenses are charged to
     operations when incurred.


8.   OTHER

<TABLE>
                                                                        December 31,
                                                           ------------------------------------
                                                              2002          2003         2003
                                                           ----------     --------     --------
                                                               R$            R$           US$
                                                           ----------     --------     --------
<S>                                                        <C>            <C>          <C>
     Prepaid expenses:
        Senior Notes                                             661          661          229
        Other                                                    164           84           29
     Recoverable taxes:
        Income tax withheld on cash investments                2,186        1,632          565
        Prepaid income tax and social contribution             2,612        5,215        1,805
        Other                                                     74          776          269
     Other                                                       225          606          209
                                                           ----------     --------     --------
                                                               5,922        8,974        3,106
                                                           ==========     ========     ========


9.   ESCROW DEPOSITS

                                                                         December 31,
                                                           ------------------------------------
                                                              2002          2003         2003
                                                           ----------     --------     --------
                                                               R$            R$           US$
                                                           ----------     --------     --------

     PIS (tax on revenues)                                        90           90           31
     PIS/COFINS (taxes on other revenues)                      6,020        1,066          369
     Finsocial (tax on revenues)                               2,515        2,429          841
     ISS (tax on revenues)                                     2,192        4,116        1,425
     Income tax and social contribution                        2,606        2,877          996
     SESC/SENAC                                                  770          792          274
     SEST/SENAT                                                1,819        2,115          732
     SAT                                                       1,282        1,282          444
     Labor litigation                                          1,199        1,351          468
     Social security contribution litigation                       -        2,464          852
     Other                                                       482          653          225
                                                           ----------     --------     --------
                                                              18,975       19,235        6,657
                                                           ==========     ========     ========
</TABLE>



                                      F-18
<PAGE>


     These deposits were primarily made in connection with pending litigation.
     Related reserves for contingencies have been recognized (Note 17), where
     applicable.


10.  TRANSACTIONS WITH RELATED PARTIES

     In 1999, Localiza sold its subsidiary Alterosa Estacionamentos Ltda.
     ("Alterosa") to Locapar Participacoes e Administracao Ltda. ("Locapar"), a
     Localiza's affiliate company, recording a receivable from Locapar.
     Alterosa's assets were principally comprised of a land in the city of Sao
     Paulo. Since Localiza and Locapar were under common control, no gain was
     recorded on the sale. During 2000, this land returned to Localiza as a
     payment to the receivable originated in the sale of Alterosa. The land was
     recorded as other current asset - properties available for sale until
     January 2001, when it was sold to third parties for R$6,095, resulting in a
     gain of R$4,639, recorded as other nonoperating income.


11.  PROPERTY AND EQUIPMENT, NET

<TABLE>
                                                                               December 31,
                                                                  -------------------------------------
                                                                     2002          2003         2003
                                                                  ----------     --------     ---------
                                                                      R$            R$           US$
                                                                  ----------     --------     ---------

<S>                                                               <C>            <C>          <C>
     Buildings                                                          989        1,583          548
     Computer equipment                                               6,354        7,050        2,440
     Software                                                         2,112        2,593          897
     Leasehold improvements                                           4,158        7,286        2,522
     Furniture                                                        3,615        4,073        1,410
     Other                                                            4,733        4,574        1,583
                                                                  ----------     --------     ---------
                                                                     21,961       27,159        9,400
     Accumulated depreciation and amortization                       (7,287)      (9,030)      (3,125)
                                                                  ----------     --------     ---------
                                                                     14,674       18,129        6,275
     Land                                                               452          452          156
                                                                  ----------     --------     ---------
                                                                     15,126       18,581        6,431
                                                                  ==========     ========     =========
</TABLE>


     (a)  Intangible assets

     As required by SFAS No. 142, following are additional disclosures related
     to other intangible assets recorded by the Company that are subject to
     amortization:

<TABLE>
                                                                               Software
                                                              ------------------------------------------
                                                                 2002            2003            2003
                                                              -----------     -----------     ----------
                                                                  R$              R$              US$
                                                              -----------     -----------     ----------

<S>                                                                <C>             <C>              <C>
     Cost                                                          2,112           2,593            897
     Accumulated amortization                                     (1,002)         (1,371)          (475)
                                                              -----------     -----------     ----------
                                                                   1,110           1,222            422
                                                              ===========     ===========     ==========
</TABLE>



                                      F-19
<PAGE>


     The amortization period for the Company's software was 5 years for the
     years ended December 31, 2001, 2002 and 2003. Aggregate amortization
     expense for the above intangible asset amounted to R$382, R$434 and R$449
     for the years ended December 31, 2001, 2002 and 2003, respectively.

     The estimated aggregate amortization expense for the next five years is as
     follows:

                                                 R$
                                             --------
                              2004               475
                              2005               322
                              2006               234
                              2007               123
                              2008                68
                                             --------
                              Total            1,222
                                             ========


12.  GOODWILL

<TABLE>
                                                                December 31,
                                                  --------------------------------------
                                                     2002          2003          2003
                                                  ----------     ---------     ---------
                                                      R$            R$            US$
                                                  ----------     ---------     ---------

<S>                                               <C>            <C>           <C>
     Goodwill on acquisition of franchisees:
         Auto Locadora Locar S.A.                     2,800         2,800          969
         Auto Locadora Locare S.A.                    1,585         1,585          549
         Londrina Locadora Ltda.                      1,329         1,329          460
                                                  ----------     ---------     ---------
                                                      5,714         5,714        1,978
     Accumulated amortization                        (1,010)       (1,010)        (350)
                                                  ----------     ---------     ---------
                                                      4,704         4,704        1,628
                                                  ==========     =========     =========
</TABLE>

     The following summary presents the Company's unaudited pro-forma
     consolidated results of operations as if the acquisition of Londrina and
     Maringa operations had been completed at the beginning of the year of
     acquisition. The pro-forma information is presented for comparative
     purposes only and does not purport to be indicative of what would have
     occurred had the acquisition actually been made at such date, nor is it
     necessarily indicative of future operating results:

                                                            Year ended
                                                         December 31, 2001
                                                         -----------------
                                                            (unaudited)
                                                         -----------------

      Net revenue                                            422,752
      Income before cumulative effect of a change in
           accounting principle                               43,919
      Net income                                              43,012



                                      F-20
<PAGE>


     On January 1, 2002, the Company adopted Statement of Financial Accounting
     Standards ("SFAS") no 142, "Goodwill and Other Intangible Assets". In
     connection with the adoption of this standard, the Company has not
     amortized goodwill during 2002 and 2003. Prior to the adoption, the
     goodwill was amortized over a five-year period, on a straight-line basis.
     The results of operations for 2001 reflect the amortization of goodwill,
     while the results of operations for 2002 and 2003 do not reflect such
     amortization (in 2002 and 2003 the goodwill amortization would have been
     approximately R$1,140). In connection with the adoption of SFAS no 142, the
     Company assessed goodwill for impairment as of January 1, 2002. The
     goodwill associated with the above acquisitions is allocated to the
     Company's car rental segment, which represents a reporting unit. The
     Company reviewed the carrying value of its car rental segment by comparing
     such amounts to its fair value and determined that the carrying amount of
     the reporting segment did not exceed its respective fair value. Fair value
     was determined by management based on valuation methodology, which
     considered the multiples of projected EBITDA (Earnings before interest, tax
     depreciation and amortization) of the segment. Accordingly, the adoption of
     SFAS no 142 did not have an impact on the Company's financial position or
     results of operations. SFAS no 142 requires that the Company assess
     goodwill for impairment annually, or more frequently if circumstances
     indicate impairment may have occurred. During 2002 and 2003, the Company
     assessed the goodwill for impairment and conclude that there is no
     impairment losses.


13.  LOANS AND FINANCING

     As of December 31, 2003, the Company had "Compror" loans indexed to the
     U.S. dollar, plus an average spread of 5.50% p.a., in the principal amount
     of US$2,811, obtained from Brazilian financial institutions, without
     collateral and maturing in January 2004. As of December 31, 2003, this
     balance amounted to R$8,309, which included accrued interest and the gain
     in the "swap" operation of the R$25, see Note 18 (a). During January 2004,
     this balance was fully paid.

     As of December 31, 2002, the Company and its subsidiaries did not have any
     outstanding loans and financing.


14.  LONG-TERM DEBT

<TABLE>
                                                                               December 31,
                                                        ---------------------------------------------------------
                                                          2002       2003        2002         2003         2003
                                                        ---------  --------   ----------   ----------    --------
                                                          Annual interest
                                                             rate (%)             R$           R$           US$
                                                        -------------------   ----------   ----------    --------
<S>                                                     <C>                   <C>          <C>           <C>
      Foreign currency - US$:
        Senior Notes                                        10.25               267,727      218,922      75,772
        (-) Interest payable on long-term debt                                   (6,616)      (5,410)     (1,872)
                                                                              ----------   ----------    --------
        Long-term portion                                                       261,111      213,512      73,900
                                                                              ==========   ==========    ========
</TABLE>

     On October 1, 1997, Localiza issued Senior Notes for US$100 million at face
     value under its 10.25% Senior Notes program. The Notes are unsecured
     obligations of the Company and



                                      F-21
<PAGE>


     will mature on October 1, 2005. Interest on the Notes is payable
     semi-annually on April 1 and October 1. The Notes are redeemable at the
     option of the Company, in whole or in part on or after October 1, 2001.

     Debt issuance costs incurred with the Senior Notes program, including fees
     and commissions, amounting to R$5,004, are capitalized as debt issuance
     costs and are being amortized over the term of the debt as an adjustment to
     financial expense.

     As of December 31, 2003, the remaining debt issuance costs to be amortized
     amount to R$802 (R$1,330 in 2002), with R$661 classified as current asset.

     The Company and its subsidiaries are subject to certain restrictions
     contained in the Senior Notes program. These restrictive covenants will
     limit, except in certain circumstances, the ability of the Company and its
     subsidiaries to, among other things, declare any dividend or other similar
     distribution, make certain stock repurchases, make certain payments on
     subordinated indebtedness or make certain investments if, after giving
     effect to such actions, (i) a default or event of default under the Senior
     Notes indenture would have occurred and be continuing, (ii) the Company and
     its subsidiaries would be unable to incur additional indebtedness under the
     debt incurrence ratio test set forth in the indenture or (iii) the amount
     of all such payments exceeds an aggregate threshold amount. A default or
     event of default includes the failure of the Company or its subsidiaries to
     observe or perform any covenant, whose covenants include limitations on the
     ability of the Company and its subsidiaries to: (i) incur certain
     additional indebtedness, (ii) create certain liens, (iii) enter into
     certain transactions with affiliates, (iv) engage in certain sale and
     leaseback transactions and (v) enter into certain merger, acquisition or
     sale transactions. Management believes that the Company is in compliance
     with all covenants described above.


15.  ACCOUNTS PAYABLE

     As of December 31, 2003, the balance of R$81,670 (R$18,818 in 2002) is
     comprised of R$70,285 (R$10,695 in 2002) related to amounts payable to car
     suppliers, with no interest. The remaining balance principally refers to
     other suppliers for maintenance services, spare parts, leases and others.


16.  PAYROLL AND RELATED CHARGES

                                                          December 31,
                                                --------------------------------
                                                   2002       2003        2003
                                                ---------   --------    --------
                                                    R$         R$          US$
                                                ---------   --------    --------

      Management compensation                      2,469      2,314         801
      Accrued vacation                             2,610      3,310       1,146
      Reserve for employees' bonuses               3,913      4,613       1,597
      INSS (social security contribution)            672        933         323
      FGTS (reserve for mandatory fund for



                                      F-22
<PAGE>


           unemployment benefits)                    216        191          66
      Other                                          187        201          69
                                                ---------   --------    --------
                                                  10,067     11,562       4,002
                                                =========   ========    ========

     The Company pays bonuses over profits to employees on a six-month basis,
     based on position and performance.


17.  RESERVE FOR CONTINGENCIES

     (a)  Reserves

<TABLE>
                                                              December 31,
                                                 -------------------------------------
                                                   2002          2003          2003
                                                 ---------     ---------     ---------
                                                    R$            R$            US$
                                                 ---------     ---------     ---------

<S>                                              <C>           <C>           <C>
      PIS (tax on revenues)                            90            90            31
      PIS/COFINS (taxes on other revenues)          7,395         5,575         1,930
      Finsocial (tax on revenues)                   2,674         2,816           975
      ISS (tax on revenues)                        11,047        18,750         6,490
      Income tax and social contribution              518           518           179
      Fiscal litigation                             2,308         2,049           709
      SESC/SENAC                                      698         1,026           355
      SEST/SENAT                                    4,348         5,341         1,849
      SAT                                           1,261         1,282           444
      Labor litigation                              2,582         2,858           989
      Social security contribution litigation           -         1,649           571
      Bodily injury and death claims                2,496         3,306         1,144
      Other                                           430           467           161
                                                 ---------     ---------     ---------
                                                   35,847        45,727        15,827
                                                 =========     =========     =========
</TABLE>

     The Company and its subsidiaries are claimants in several lawsuits and
     defendants in several others. It has recognized the above reserves
     considering the opinion of its external legal and tax counsel which
     consider that the likelihood of an unfavorable outcome related to these
     cases is probable.

     o    PIS (tax on revenues) - The Company's subsidiaries have pending
          litigations contesting this tax. As of December 31, 2003 and 2002, the
          amount of the provision is R$90, totally deposited in an escrow
          account.

          In December 2002, the subsidiaries petitioned for the conversion of
          escrow deposits, which assured suspension of the payments to the
          Federal Government, although they maintained the lawsuits. This
          conversion to the Government has not been granted in court.

     o    PIS/COFINS (taxes on other revenues) - The Company and its
          subsidiaries have pending litigation contesting these taxes in the
          total amount of R$5,575 (R$7,395 in 2002), of which R$1,066 (R$6,020
          in 2002) are deposited in an escrow account.



                                      F-23
<PAGE>


          In December 2002, the Company and its subsidiaries petitioned for the
          conversion of the escrow deposits, which assured suspension of the
          payments to the Federal Government, although they maintained the
          lawsuits and resumed the monthly payments. The COFINS conversion to
          the Government has been granted in court. However, the PIS conversion
          has not yet been granted.

     o    Finsocial (tax on revenues) - In prior years, the Company paid this
          tax at a rate of 0.5% in accordance with the original law.
          Subsequently, the rate was gradually increased to 2%. The Company is
          contesting this rate increase. The reserve amounted to R$2,816
          (R$2,674 in 2002), of which R$2,429 (R$2,515 in 2002) are deposited in
          an escrow account.

          In July 1999, the Company took advantage of a tax amnesty program,
          pursuant to the Law No. 9.779/99, petitioning for the conversion of
          the escrow deposit. If the conversion is granted in court, part of
          the provisioned amount will be reversed.

     o    ISS (tax on revenues) - The Company and its subsidiary Total Fleet
          have been contesting the charge of this tax on their rental revenues
          for the period from July 2001 to July 2003. In July, 2003 the
          Brazilian government issued Law No. 116/03, which recognized rental
          revenues as non-taxable activities as from August 2003. As of
          December 31, 2003, the reserve amounted to R$18,750 (R$11,047 in
          2002), of which R$4,116 (R$2,192 in 2002) are deposited in an escrow
          account.

     o    Income tax and social contribution - As a result of tax inspections in
          prior years, the Company and Franchising were assessed by the tax
          authorities, mainly due to the allegation that certain expenses were
          inappropriately treated as deductible and they were not considered
          necessary to the Company's operations for tax purposes.

          The Company and Franchising based their defenses on prior decisions of
          the Supreme Court and legislation in force. These reserves amount to
          R$518 as of December 31, 2003 and 2002, while the amount of R$2,877
          (R$2,606 in 2002) is deposited in an escrow account. The settlement of
          the Franchising contingency was guaranteed by a bank guarantee in the
          amount of R$931.

          In September 2002, the Company and Franchising took advantage of a tax
          amnesty program, pursuant to Executive Order no 66/02, reducing part
          of the debts related to these tax assessments in the amount of R$665.

     o    SESC/SENAC - The Company, Franchising and Prime have pending
          litigations contesting these payroll-related taxes. These reserves
          amount to R$1,026 (R$698 in 2002) as of December 31, 2003, of which
          R$792 (R$770 in 2002) are deposited in an escrow account.

          In December 2002, Prime petitioned for the conversion of the escrow
          deposits, which assured suspension of the payments to the Federal
          Government, although it maintained the lawsuit and resumed the monthly
          payments. This conversion to the Government has not been granted in
          court.

     o    SEST/SENAT - The Company and Total Fleet have pending litigation
          contesting these payroll-related taxes. These reserves amount to
          R$5,341 (R$4,348 in 2002) as of



                                      F-24
<PAGE>


          December 31, 2003, of which R$2,115 (R$1,819 in 2002) are deposited in
          an escrow account.

     o    SAT - The Company and its subsidiaries have pending litigation
          contesting these payroll-related taxes. These reserves amount to
          R$1,282 (R$1,261 in 2002) as of December 31, 2003, totally deposited
          in an escrow account (R$1,282 in 2002).

          In December 2002, the Company and its subsidiaries petitioned for the
          conversion of the escrow deposits, which assured suspension of the
          payments to the Federal Government, although they maintained the
          lawsuits and resumed the monthly payments. This conversion to the
          Government has not been granted in court.

     o    Labor litigation - The Company is party to several labor claims
          related principally to the payment of overtime and related social
          charges. Management, after considering the opinion of its legal
          counsel, believes that the recorded accrual for these claims is
          sufficient to cover probable losses. In December 31, 2003, these
          reserves amounted to R$2,858 (R$2,582 in 2002) of which R$1,351
          (R$1,199 in 2002) are deposited in an escrow account. The total amount
          of these claims is R$7,815.

     o    Bodily injury and death claims - The Company and its subsidiaries are
          party to several claims related to bodily injury and death, caused by
          vehicles. Management, after considering the opinion of its external
          legal counsel, believes that the recorded accrual for these claims in
          the amount of R$3,306 as of December 31, 2003 (R$2,496 in 2002) is
          sufficient to cover probable losses. Of this amount, R$62 (R$56 in
          2002) are deposited in an escrow account.

     o    Fiscal and social security litigations - The Company and its
          subsidiaries are party in some fiscal and social security lawsuits.

          Management, based on the opinion of its external legal counsel,
          recorded a provision of R$3,698 (R$2,308 in 2002) and believes that it
          is sufficient to cover probable losses of which R$2,464 are deposit in
          a escrow account.

     Accruals for the aforementioned contingencies are determined based on an
     analysis of the pending claims, as well as on the potential risks involved.

     (b)  Other contingencies

     In addition to the above mentioned reserves, the Company and its
     subsidiaries are defendants in other tax lawsuits, considered a remote loss
     by legal counsel. Such lawsuits have their settlements guaranteed by bank
     guarantees, as per judicial procedures request, in the amount approximately
     of R$3,000.

     The Company's management, based on the opinion of its external legal and
     tax counsel, does not expect that the resolution of these matters will have
     a material adverse effect on the Company's financial position or results of
     operations and believes that no additional reserves for contingencies are
     required.





                                      F-25
<PAGE>

18.  FINANCIAL INSTRUMENTS

     (a)  Swap operations

     As of December 31, 2003, R$ 227,231 (R$267,727 in 2002) of the Company's
     debt and loans were denominated in U.S. dollars, while all of the Company's
     revenues were denominated in Brazilian reais. The Company contracted "Swap"
     operations, aiming to protect itself from exchange fluctuations on U.S.
     dollar denominated liabilities, as follows:

<TABLE>
                                                                                                                        Unrealized
                                                                                                         Unrealized     gain/(loss)
                               Notional                                                                  loss as of        as of
    Date of                    amount -     US$ rate at                                                 December 31,   December 31,
   contract        Due date      US$       contract date      Company pays        Company receives'         2002           2003
---------------   ----------   ---------  ---------------   -----------------  -----------------------  ------------  --------------

<S>               <C>          <C>        <C>               <C>                <C>                      <C>           <C>
Short term:

                                                                                    Exchange rate
 From 12/15/03       From                                      100% CDI +       variation + coupon of
                   01/29/04        2,811      2.9420           1.72% p.a.             5.50% p.a.                 -             25

Long term:

                                                From                                Exchange rate
 From 09/05/01                                 2.5642                             variation + coupon
  to 10/16/01                                to 2.7400                           (from 9.30% to 9.80%
                   09/29/05       66,300                        100% CDI                p.a.)              (12,031)       (18,950)

                                                             Exchange rate
     From                                                  variation + coupon
   10/21/03        09/29/05        5,400      2.8839         of 5.10% p.a.             100% CDI                  -           (122)
                                                                                                        -----------    -----------
                                                                                                           (12,031)       (19,047)
Current liabilities - Loans and financing                                                                        -             25
                                                                                                        -----------    -----------
Noncurrent liabilities - Unrealized loss on derivatives                                                    (12,031)       (19,072)
                                                                                                        ===========    ===========
</TABLE>


     The unrealized gains/losses have been determined based on the fair values
     of these swap contracts which were estimated based on discounting future
     contracted cash flows considering market rates, terms and conditions at
     each balance sheet date. The Company's objectives were to protect its loans
     and financing in foreign currency against foreign currency devaluation
     during the year through "Swap" between foreign currency and fixed interest
     rate. These agreements were contracted with major financial institutions in
     Brazil. The current portion of the unrealized gain is recorded as loans and
     financing as of December 31, 2003.

     (b)  Other financial instruments

     The following disclosure of the estimated fair value of financial
     instruments is made in accordance with the requirements of SFAS No. 107
     "Disclosure about Fair Value of Financial Instruments". The Company used
     available market information and valuation methodologies to estimate fair
     value amounts. However, considerable judgment is required in interpreting
     market data to develop the estimates of fair value. Accordingly, the
     estimates presented herein may not be indicative of the amounts that the
     Company could settle in a current market exchange. The use of different
     market assumptions or valuation methodologies may have a material effect
     on the estimated fair value amounts.



                                      F-26
<PAGE>


     The carrying values of cash and cash equivalents, receivables, accounts
     payable and short-term loans approximate fair values due to the short-term
     maturities of these instruments. The carrying amounts, face value and
     estimated fair values of the Company's other financial instruments are as
     follows:


<TABLE>
                                                       December 31, 2002                         December 31, 2003
                                              -------------------------------------   ---------------------------------------
                                                 Book           Face         Fair        Book           Face           Fair
                                                value          value         value      value          value          value
                                              ---------      ---------    ---------   --------   -----------------  ---------
                                                               R$                                       R$
                                              -------------------------------------   ---------------------------------------

<S>                                            <C>            <C>          <C>         <C>             <C>           <C>
Marketable securities:
   Cost plus foreign exchange variation         11,078         11,941       11,078           -               -             -
Debt:
   Senior Notes- principal                     261,111        261,111      182,778     213,512         213,512       207,107

 Derivative contracts                          (12,031)             -      (12,031)    (19,072)              -       (19,072)
</TABLE>

     The methods and assumptions used to estimate the fair values of the
     marketable securities and debt were based on market quotations from
     financial institutions and securities dealers as of the balance sheet
     dates.

     (c)  Net foreign currency position

     The Company's net foreign currency position in U.S. dollars is as follows:

<TABLE>
                                                          Thousands of US$
                                                     --------------------------
                                                        2002             2003
                                                     ----------      ----------

<S>                                                    <C>             <C>
     Short-term assets                                   3,135               -
     Notional amount of derivatives                     74,437          75,407
     Short-term liabilities                             (1,872)         (1,872)
     Long-term liabilities                             (73,900)        (73,900)
                                                     ----------      ----------
     Net foreign currency assets (liabilities)           1,800            (365)
                                                     ==========      ==========
</TABLE>

     The exchange rates as of December 31, 2002 and 2003 were R$3.5333 and
     R$2.8892 per US$1.00, respectively.


19.  INCOME TAX AND SOCIAL CONTRIBUTION

     (a)  Deferred income tax and social contribution

     Temporary differences and carryforwards which give rise to deferred tax
     assets and liabilities are as follows:



                                      F-27
<PAGE>


<TABLE>
                                                                                   December 31,
                                                                        ----------------------------------
                                                                          2002         2003         2003
                                                                        ---------    ---------    --------
                                                                           R$           R$           US$
                                                                        ---------    ---------    --------

<S>                                                                     <C>          <C>          <C>
        Deferred tax assets:
          Allowance for doubtful accounts                                    676          884         306
          Reserve for contingencies                                        9,970       12,581       4,354
          Tax  effect on  difference  in  accounting  for  derivative
             between U.S. GAAP and Brazilian GAAP                         19,009            -           -

          Tax  benefit  resulting  from  merger of holding  companies
             (Note 1a)                                                       596            -           -
          Tax loss carryforwards                                           3,753        2,785         964
          Other                                                            1,146        1,082         375
                                                                        ---------    ---------    --------
                                                                          35,150       17,332       5,999
          Valuation allowance                                                (88)      (1,937)        (670)
                                                                        ---------    ---------    --------
                                                                          35,062       15,395       5,329
          Current portion                                                 (1,585)      (2,909)     (1,007)
                                                                        ---------    ---------    --------
          Long-term portion                                               33,477       12,486       4,322
                                                                        ==========   ==========   =========

        Deferred tax liabilities:
          Goodwill amortization                                              387          778         269
          Tax effect on  difference  in  accounting  for  derivatives
             between U.S. GAAP and Brazilian GAAP                              -        5,830       2,018
          Extraordinary gain on debt extinguishment                        6,786        4,307       1,491
          Depreciation                                                    10,112        9,881       3,420
                                                                        ---------    ---------    --------
                                                                          17,285       20,796       7,198
          Current portion                                                 (7,302)      (6,356)     (2,200)
                                                                        ---------    ---------    --------
          Long-term portion                                                9,983       14,440       4,998
                                                                        =========    =========    ========
</TABLE>

     The Company's management believes, based on projections of future taxable
     income and the fact that tax loss carryforwards in Brazil may be used
     indefinitely, it is more likely than not that the deferred income tax
     assets will be realized, except for Localiza and the subsidiary Prime, for
     which a valuation allowance of R$1,726 in 2003 (R$88 in 2002) was
     established, mainly referent to social contribution tax.

     From 2004 on, after the Franchising spun-off, the company's management
     believes, based on projections of future taxable income, that the
     realization of the deferred taxes previously recorded by Franchising are
     not more likely than not and a valuation allowance have been recorded, in
     the amount of R$211.

     (b)  Income tax and social contribution

     Income tax and social contribution at nominal rates are reconciled to the
     amount reported as income tax expense in these financial statements, as
     follows:

<TABLE>
                                                                               Year ended December 31,
                                                                   -----------------------------------------------
                                                                      2001         2002        2003         2003
                                                                   ----------    ---------   ---------    --------
                                                                       R$           R$          R$           US$
                                                                   ----------    ---------   ---------    --------

<S>                                                                <C>           <C>         <C>          <C>
Income before taxes                                                   60,381      32,349      151,942      52,590
Nominal rate                                                             34%         34%          34%         34%
                                                                   ----------    ---------   ---------    --------
Income taxes at nominal rate                                         (20,530)    (10,999)     (51,660)    (17,880)
   Interest on capital                                                 2,160       5,120        7,188       2,488
   Reversal (increase) of valuation allowance                          2,392         (20)      (1,849)       (640)
   Other                                                                (515)        314          125          43
                                                                   ----------    ---------   ---------    --------
                                                                     (16,493)     (5,585)     (46,196)    (15,989)
                                                                   ==========    =========   =========    ========
</TABLE>




                                      F-28
<PAGE>

     The tax rates for the periods are:

     Income tax                                                              15%
     Additional income tax (for the taxable income exceeding
      R$240 per year)                                                        10%

     Social contribution                                                      9%

     Under the Brazilian income tax law, the Company and its subsidiaries are
     treated as separate taxable entities and are not entitled to file
     consolidated tax returns.


20.  SHAREHOLDERS' EQUITY

     (a)  Capital stock

     As of December 31, 2003, capital stock as per the statutory records was
     represented by R$146,970 (R$129,000 in 2002) corresponding to 15,360,000
     issued and outstanding nominative common shares, with no par value. Capital
     can be increased by 810,000 nominative preferred shares through
     deliberation of the Board of Directors. The composition of outstanding
     capital stock and shareholders are as follows:

                                                       Common
                      Shareholders                     Shares            %
      -------------------------------------------   --------------   ----------

      Founders                                        10,239,994        66.66
      DLJMB Overseas Partners II, C.V.                 3,225,217        21.00
      DLJ First ESC L.P.                                 614,400         4.00
      DLJMB Funding II, Inc.                             572,622         3.73
      DLJ Diversified Partners, L.P.                     188,561         1.23
      DLJ Offshore Partners II, L.P.                     158,599         1.03
      DLJMB Overseas Partners II-A, C.V.                 128,443         0.84
      UK Investment Plan 1997 Partners                    85,333         0.56
      DLJ Diversified Partners-A, L.P.                    70,025         0.46
      DLJ Millennium Partners, L.P.                       52,148         0.33
      DLJ EAB Partners, L.P.                              14,481         0.09
      DLJ Millennium Partners-A, L.P.                     10,171         0.07
      Board members                                            6         0.00
                                                    --------------   ----------
                                                      15,360,000       100.00
                                                    ==============   ==========


     (b)  Dividends

     In accordance with Brazilian Corporate Law, the Company's bylaws require
     that the Company's shareholders be paid a minimum annual dividend of 25% of
     adjusted net profit. However, upon the vote of 100% of the shareholders
     present at the general shareholders'



                                      F-29
<PAGE>


     meeting, such shareholders may declare a lower dividend or decide not to
     declare them. In addition, upon the recommendation of the Board of
     Directors that the payment of a dividend in respect of any period would be
     incompatible with the financial circumstances of the Company, the payment
     of the minimum dividend in respect of such period is not mandatory. In such
     case, the adjusted net profit, which was not distributed for such reason,
     is recorded as a special reserve and, if not absorbed by losses in
     subsequent fiscal years, is paid as soon as the financial situation of the
     Company permits.

     Brazilian legislation permits dividend payments limited to the accumulated
     earnings in the statutory financial statements prepared in accordance with
     Brazilian Corporate Law.

     For the years ended in December 31, 2001, 2002 and 2003, the Company's net
     income in accordance with Brazilian Corporate Law was R$30,697, R$46,807
     and R$63,223, respectively, and the accumulated earnings available for
     payment of dividends were R$39,568, R$48,976 and R$74,647, respectively.
     The appropriation of the Company's net income was determined in the annual
     shareholders' meetings, resulting in a decision to pay dividends of
     R$15,000 in 2001, R$20,000 in 2002 and R$54,350 in 2003. The appropriation
     of the Company's net income for 2003 will be determined at the annual
     shareholders' meeting in 2004.

     According to Brazilian law, the foreign capital must be registered with the
     Brazilian Central Bank to allow the dividends remittance and repatriation
     of capital for foreign shareholders.

     (c)  Interest on capital

     The interest on capital paid in 2001, 2002 and 2003, amounting to R$6,353,
     R$15,059 and R$21,141, respectively, were approved by the Extraordinary
     General Shareholders' meetings held on June 30, 2001, December 31, 2002 and
     December 30, 2003. As also approved by the meetings mentioned above, the
     shareholders decided to contribute to capital the amount related to
     interest on capital, net of the corresponding income tax withheld.

     The interest on capital was paid pursuant to Article No. 9 of Law No.
     9.249, of December 26, 1995, and amendments introduced by Article No. 78
     of Law No. 9.430, of December 27, 1996. Interest was calculated based on
     shareholders' equity, is limited to the variation of the Long-Term
     Interest Rate ("TJLP"), and is deductible for income tax purposes.


21.  STOCK OPTION PLAN

     The Company sponsors a stock option plan, which grants employees and
     directors the option to purchase stocks at prices annually determined.
     Options were granted in five installments in the last five years, ended in
     2002, and each installment is exercisable within four years from the grant
     date, 25% of the installment per year based on the terms of the grant.

     The maturity date to exercise the options have been is April 30, 2007. The
     strike price is restated annually by the IGPM (General Price Index-Market).

     Until December 31, 2003, no options have been exercised. Had all options
     being exercised the current shareholders stake would have a reduction from
     100% to 96.7%.



                                      F-30
<PAGE>


     The following table summarizes the status of the Company's stock option
     plan:

<TABLE>
             Beginning of year          Granted                Forfeited                   End of year
  ----------------------------------------------------------------------------------------------------------------
                                                                                                         Restated
                                                                                                          strike
  Year     Eligible    Options    Eligible    Options    Eligible     Options    Eligible    Options      price
  ----     --------    -------    --------    -------    ---------    -------    --------    -------    ----------

<S>        <C>         <C>        <C>         <C>        <C>          <C>        <C>         <C>        <C>
  2001        36       407,750       -        154,500        4        34,250        32       528,000      R$ 31.75
  2002        32       528,000       2        153,000        2        48,000        32       633,000      R$ 32.89
  2003        32       633,000       -            -          4       102,000        28       531,000         -
</TABLE>


              Remained     Restated strike
     Year      options          price
     ------   ---------    ---------------
       1998      90,000          R$20.14
       1999     102,000          R$31.55
       2000     109,000          R$29.55
       2001     112,000          R$31.75
       2002     118,000          R$32.89
              ---------
                531,000
              ---------

     As allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
     "Accounting for Stock-Based Compensation", the Company elected to continue
     to measure cost for its stock option plan using the intrinsic value based
     method for variable stock plan as prescribed by Accounting Principles
     Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees".
     Under the intrinsic value method, cost is the excess, if any, of the
     quoted market price of the stock at grant date or other measurement date
     over the amount an employee must pay to acquire the stock. Entities
     choosing to continue applying APB Opinion No. 25 on employee stock options
     granted on or after January 1996 must provide pro forma disclosures of net
     income, as if the fair value method of accounting had been applied. Under
     this method, cost is measured at the grant date based on the fair value of
     the employee stock option and is recognized ratably over the service
     period of the option, which is usually the vesting period. For all periods
     presented, fair value of the Company's shares did not exceed the exercise
     prices of the options and consequently, no compensation expense was
     recorded. Additionally, the pro forma disclosures required by SFAS No. 123
     have not been presented, as the effect of measuring compensation expense
     under SFAS No. 123 was immaterial for all periods presented.


22.   SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES

<TABLE>
                                                      Year ended December 31,
                                        --------------------------------------------------
                                            2001         2002         2003         2003
                                        -----------   ----------   ----------   ----------
                                             R$           R$           R$           US$
                                        -----------   ----------   ----------   ----------

<S>                                     <C>           <C>          <C>          <C>
     Payroll and related charges           (20,695)     (23,366)     (28,144)      (9,741)
     Employees' bonuses                     (3,107)      (3,512)      (4,153)      (1,438)
     External services                      (4,422)      (4,394)      (3,765)      (1,303)
     Leases                                 (2,182)      (3,524)      (3,560)      (1,232)
     Travel                                 (1,246)      (1,351)      (1,373)        (475)
     Advertising                            (7,737)      (9,648)      (9,263)      (3,206)
     Sales commissions                      (1,244)      (1,471)        (894)        (310)
     Maintenance and office supplies        (5,530)      (7,083)      (5,455)      (1,888)
     Provision for doubtful accounts        (1,102)      (1,436)         128           44
     Taxes                                    (772)      (2,220)      (2,991)      (1,035)
     Other                                  (4,401)      (4,477)      (5,932)      (2,053)
                                        -----------   ----------   ----------   ----------
                                           (52,438)     (62,482)     (65,402)     (22,637)
                                        ============  ===========  ===========  ===========
</TABLE>



                                      F-31
<PAGE>


23.  FINANCIAL EXPENSES, NET

<TABLE>
                                                                               Year ended December 31,
                                                                 ----------   -----------   ----------   ---------
                                                                    2001         2002          2003         2003
                                                                 ----------   -----------   ----------   ---------
                                                                     R$           R$            R$           US$
                                                                 ----------   -----------   ----------   ---------

<S>                                                              <C>          <C>           <C>          <C>
      Interest income                                               17,637        17,069       35,473      12,278
      Interest expense                                             (30,431)      (28,770)     (29,741)    (10,294)
      Taxes on financial revenues                                   (2,010)       (1,305)      (1,672)       (579)
      Reversal of compulsory loan, net                                (383)            -            -           -
      Net monetary variation and exchange gains (losses)           (29,328)      (85,044)      46,896      16,232
      Realized gains (losses) on sale of marketable securities      15,737         1,566         (219)        (76)
      Unrealized gains (losses) on derivatives                     (26,235)       14,204       (7,016)     (2,428)
      Realized gains on derivatives                                  6,722         1,891            -           -
      Other                                                         (2,173)       (2,425)      (3,044)     (1,054)
                                                                 ----------   -----------   ----------   ---------
                                                                   (50,464)      (82,814)       40,677      14,079
                                                                 ===========  ============  ===========  ==========
</TABLE>

     The unrealized gains (losses) on derivatives for the years ended December
     31, 2001, 2002 and 2003 are determined based on the settlement value of the
     corresponding contracts, on an accrual basis.


24.  LEASE COMMITMENTS

     As of December 31, 2003, of the 71 car rental locations and the 15 used car
     sales locations, 4 were located on premises owned by the Company and the
     others were located on rented premises (under one to twenty year renewable
     leases), including 31 locations in airports (under one to fifteen year
     renewable concessions), and the head office building. The amounts payable
     under the remaining lease terms are as follows:


                       Years              Airport
                                        concessions         Other
                  -----------------    ---------------   -----------
                        2004                    4,262         4,459
                        2005                    1,674         3,114
                        2006                    1,335         1,879
                        2007                    1,078         1,160
                        2008                      654           972
                   2009 and after                   -         5,348
                                       ---------------   -----------
                                                9,003        16,932
                                       ===============   ===========


     The Company has a 20-year-term lease contract for its Porto Alegre used car
     sales location, signed in 2002, in the monthly amount of R$24.



                                      F-32
<PAGE>


     Rental expense during the years ended December 31, 2001, 2002 and 2003
     amount to R$7,526, R$9,254 and R$10,343, respectively.

     The guaranteed minimum lease payments to be received by the subsidiary
     Total Fleet from the operating leases of cars by the fleet management
     business are distributed as follow:


                            Years         Revenues
                        -------------   ------------

                            2004             91,458
                            2005             49,102
                            2006             17,666
                            2007              3,668
                                        ------------
                                            161,894
                                        ============


25.  SUMMARY FINANCIAL DATA BY BUSINESS SEGMENT

     The Company follows SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information." SFAS No. 131 requires companies to
     disclose segment data based on how management makes decisions about
     allocating resources to segments and measuring their performance.

     The Company has identified four reportable operating segments: car rental,
     fleet management, franchising and used car sales. The accounting policies
     of the operating segments are the same as those described in the summary of
     significant accounting policies. Segment amounts disclosed are after
     intercompany elimination entries made in consolidation. The contribution of
     these segments, as well as "corporate and other" for each of the three
     years ended December 31, 2003 are summarized below:

<TABLE>
                                                                     Year ended December 31,
                                                        ------------------------------------------------
                                                           2001          2002        2003        2003
                                                        ----------   -----------  ----------   ---------
                                                            R$            R$          R$          US$
                                                        ----------   -----------  ----------   ---------
<S>                                                     <C>          <C>          <C>          <C>
      Net revenues:
         Car rental                                       144,253      162,595      155,291      53,749
         Fleet management                                 120,229      118,782      120,309      41,641
         Franchising                                        5,056        5,111        5,456       1,888
         Used car sales                                   150,907      190,476      250,978      86,868
                                                        ----------   -----------  ----------   ---------
                                                          420,445      476,964      532,034     184,146
                                                        ==========   ===========  ==========   =========

      Depreciation and amortization:
         Car rental                                        17,114       15,110       14,225       4,923
         Fleet management                                  26,881       15,952       22,997       7,960
         Other                                              2,634        3,426        3,841       1,329
                                                        ----------   -----------  ----------   ---------
                                                           46,629       34,488       41,063      14,212
                                                        ==========   ===========  ==========   =========

      Operating income:
         Car rental                                        48,838       55,628       49,372      17,088
         Fleet management                                  53,908       58,699       54,078      18,717
         Franchising                                        1,323        2,211        2,483         859
</TABLE>



                                      F-33
<PAGE>


<TABLE>
                                                                     Year ended December 31,
                                                        ------------------------------------------------
                                                           2001          2002        2003        2003
                                                        ----------   -----------  ----------   ---------
                                                            R$            R$          R$          US$
                                                        ----------   -----------  ----------   ---------
<S>                                                     <C>          <C>          <C>          <C>
         Used car sales                                    18,565       15,847       25,012       8,657
         Corporate expenses                               (13,630)     (13,671)     (15,936)     (5,515)
         Other depreciation                                (2,634)      (3,426)      (3,841)     (1,329)
                                                        ----------   -----------  ----------   ---------
                                                          106,370      115,288      111,168      38,477
                                                        ==========   ===========  ==========   =========

      Capital expenditures:
         Car rental                                       157,386      152,140      193,128      66,844
         Fleet management                                  96,599       68,077      101,639      35,179
         Corporate                                            788        1,405          890         308
                                                        ----------   -----------  ----------   ---------
                                                          254,773      221,622      295,657     102,331
                                                        ==========   ===========  ==========   =========

      Identifiable assets:
         Car rental                                       235,692      285,102      277,629      96,092
         Fleet management                                 185,875      177,317      201,193      69,636
         Used car sales                                    10,667       11,706       12,070       4,178
         Franchising                                        3,110        3,164        2,985       1,033
         Corporate                                         60,547       89,286      168,526      58,330
                                                        ----------   -----------  ----------   ---------
                                                          495,891      566,575      662,403     229,269
                                                        ==========   ===========  ==========   =========

      Identifiable revenue-earning vehicles:
         Car rental                                       169,368      189,879      201,643      69,792
         Fleet management                                 163,415      160,559      187,218      64,799
                                                        ----------   -----------  ----------   ---------
                                                          332,783      350,438      388,861     134,591
                                                        ==========   ===========  ==========   =========
      Goodwill:
         Car rental                                         4,704        4,704        4,704       1,628
                                                        ==========   ===========  ==========   =========
</TABLE>

     Enterprise wide geographic disclosures have not been presented as all
     significant operations and customers of Localiza and its subsidiaries are
     located in Brazil.


26.  RECENTLY ISSUED ACCOUNTING STANDARDS

     During June 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards No. 141 (SFAS No. 141),
     "Business Combinations". SFAS No. 141 addresses financial accounting and
     reporting for business combinations. All business combinations in the scope
     of SFAS No. 141 are to be accounted for using one method, the purchase
     method. In addition, SFAS No. 141 requires that intangible assets be
     recognized as assets apart from goodwill if they meet two criteria: the
     contractual-legal criterion or the separability criterion. To assist in
     identifying acquired intangible assets, SFAS No. 141 also provides a list
     of intangible assets that meet either of those criteria. In addition to the
     disclosure requirements prescribed in Opinion 16, SFAS No. 141 requires
     disclosure of the primary reasons for a business combination and the
     allocation of the purchase price paid to the assets acquired and
     liabilities assumed by major balance sheet caption. SFAS No. 141 also
     requires that when the amounts of goodwill and intangible assets acquired
     are significant to the purchase price paid, disclosure of other information
     about those assets is required, such as the amount of goodwill by
     reportable segment and the amount of the purchase price assigned to each
     major intangible asset class. The provisions of SFAS No. 141 apply to all
     business combinations initiated after June 30, 2001. SFAS No. 141 also
     applies to all business combinations accounted for using the purchase
     method



                                      F-34
<PAGE>


     for which the date of acquisition is July 1, 2001, or later. The adoption
     of SFAS No. 141 on January 1, 2002 did not have any impact on the Company's
     financial statements.

     During June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
     Assets". SFAS No. 142 addresses financial accounting and reporting for
     acquired goodwill and other intangible assets. SFAS No. 142 amends SFAS No.
     121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived
     Assets to Be Disposed Of", to exclude from its scope goodwill and
     intangible assets that are not amortized. SFAS No. 142 addresses how
     intangible assets that are acquired individually or with a group of other
     assets (but not those acquired in a business combination) should be
     accounted for in financial statements upon their acquisition. This
     Statement also addresses how goodwill and other intangible assets should be
     accounted for after they have been initially recognized in the financial
     statements. The provisions of SFAS No. 142 are required to be applied
     starting with fiscal years beginning after December 15, 2001. The adoption
     of SFAS No.142 on January 1, 2002 did not have any impact on the Company's
     financial statements.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
     Retirement Obligations". SFAS No. 143 requires that the fair value of a
     liability for an asset retirement obligation be recognized in the period in
     which it is incurred if a reasonable estimate of fair value can be made.
     Under SFAS No. 143, the liability for an asset retirement obligation is
     discounted and accretion expense is recognized using the credit-adjusted
     risk-free interest rate in effect when the liability was initially
     recognized. In addition, disclosure requirements contained in SFAS No. 143
     will provide more information about asset retirement obligations. SFAS No.
     143 is effective for financial statements issued for fiscal years beginning
     after June 15, 2002 with earlier application encouraged. Since the Company
     does have any legal asset retirement obligations pursuant to the respective
     concession contracts, the adoption of this standard as of January 1, 2003
     did not have any impact on the Company's financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets". The new standard will be
     effective for financial statements issued for fiscal years beginning after
     December 15, 2001, with early application encouraged. SFAS No. 144
     supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of", although it retains
     the fundamental provisions of SFAS No. 121. SFAS No. 144 also expands the
     scope of discontinued operations presentation to a component of an entity
     and eliminates the exception to consolidation for a temporarily controlled
     subsidiary. The adoption of SFAS No. 144 had no impact on the Company's
     financial position, results of operations or cash flows.

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
     Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses
     from Extinguishment of Debt," which required that all gains and losses from
     extinguishment of debt to be aggregated and classified as an extraordinary
     item if material. SFAS No. 145 requires that gains and losses from
     extinguishment of debt be classified as extraordinary only if they meet
     criteria in APB 30, thus distinguishing transactions that are part of
     recurring operations from those that are unusual or infrequent, or that
     meet the criteria for classification as an extraordinary item. SFAS No. 145
     amends SFAS No. 13, "Accounting for Leases", to require that lease
     modifications that have economic effects similar to sale-leaseback
     transactions be accounted



                                      F-35
<PAGE>


     for in the same manner as sale-leaseback transactions. In addition, SFAS
     No. 145 rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
     Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
     Sinking-Fund Requirements," which are not currently applicable to the
     Company. The provisions of SFAS No. 145 as they relate to the rescission of
     SFAS No. 4 shall be applied in fiscal year 2003. Certain provisions related
     to SFAS No. 13 are effective for transactions occurring after May 15, 2002.
     The adoption of this statement did not have an impact on the Company's
     financial statements.

     In June 2002, FASB issued SFAS No. 146 "Accounting for costs associated
     with Exit or Disposal Activities". This Statement addresses financial
     accounting and reporting for costs associated with exit or disposal
     activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
     "Liability Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity (including Certain Costs Incurred in a
     Restructuring)." The principal difference between this Statement and EITF
     94-3 relates to its requirements for recognition of a liability for a cost
     associated with an exit or disposal activity. This Statement requires that
     a liability for a cost associated with an exit or disposal activity be
     recognized when the liability is incurred. Under EITF 94-3, a liability for
     an exit cost was recognized at the date of an entity's commitment to an
     exit plan. A fundamental conclusion reached by the Board in this Statement
     is that an entity's commitment to a plan, by itself, does not create a
     present obligation to others that meets the definition of a liability. This
     Statement also establishes that fair value is the objective for initial
     measurement of the liability. This Statement improves financial reporting
     by requiring that a liability for a cost associated with an exit or
     disposal activity be recognized and measured initially at fair value only
     when the liability is incurred. The accounting for similar events and
     circumstances will be the same, thereby improving the comparability and
     representational faithfulness of reported financial information. The
     provisions of this Statement are effective for exit or disposal activities
     that are initiated after December 31, 2002, with early application
     encouraged. During 2003, the Company did not have any exit or disposal
     activities and consequently, this statement did not have an impact on the
     Company's financial statements during the year ended December 31, 2003.

     In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
     Instruments with Characteristics of both Liabilities and Equity". SFAS No.
     150 modifies the accounting for certain financial instruments that, under
     previous guidance, issuers could account for as equity. The Statement
     requires that those instruments be classified as liabilities in statements
     of financial position. SFAS No. 150 affects an issuer's accounting for
     three types of freestanding financial instruments, namely:

          1.   Mandatory redeemable shares, which the issuing company is
               obligated to buy back in exchange for cash or other assets.

          2.   Instruments, other than outstanding shares, that do or may
               require the issuer to buy back some of its shares in exchange for
               cash or other assets. These instruments include put options and
               forward purchase contracts.

          3.   Obligations that can be settled with shares, the monetary value
               of which is fixed, tied solely or predominantly to a variable
               such as a market index, or varies inversely with the value of the
               issuers' shares.



                                      F-36
<PAGE>


     SFAS No. 150 does not apply to features embedded in financial instruments
     that are not derivatives in their entirety. In addition to its requirements
     for the classification and measurement of financial instruments within its
     scope, SFAS No. 150 also requires disclosures about alternative ways of
     settling those instruments and the capital structure of entities, all of
     whose shares are mandatorily redeemable. SFAS No. 150 is effective for
     financial instruments entered into or modified after May 31, 2003, and
     otherwise is effective at the beginning of the first interim period
     beginning after June 15, 2003. It is to be implemented by reporting the
     cumulative effect of a change in an accounting principle for financial
     instruments created before the issuance date of the Statement and still
     existing at the beginning of the interim period of adoption. The adoption
     of this statement did not have an impact on the Company's financial
     statements for the year ended December 31, 2003.

     In November 2002, the FASB issued Interpretation 45, "Guarantor's
     Accounting and Disclosure Requirements for Guarantees, Including Indirect
     Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain
     disclosures to be made by a guarantor in its interim and annual financial
     statements about its obligations under certain guarantees that it has
     issued. It also requires a guarantor to recognize, at the inception of a
     guarantee, a liability for the fair value of the obligation undertaken in
     issuing the guarantee. The disclosure requirements of FIN 45 are effective
     for interim and annual periods ending after December 15, 2002. The initial
     recognition and initial measurement requirements of FIN 45 are effective
     prospectively for guarantees issued or modified after December 31, 2002.
     The adoption of this statement did not have an impact on the Company's
     financial statements for the year ended in December 31, 2003.

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
     Interpretation 46 "Consolidation of Variable Interest Entities, an
     interpretation of ARB 51" which provided a new framework for identifying
     variable interest entities (VIEs) and determining when a company should
     include the assets, liabilities, non-controlling interests and results of
     activities of a VIE in consolidated financial statement. FIN 46 was
     effective immediately for VIEs created after January 31, 2003 and to VIES
     in which an enterprise obtained a variable interest after that date. For
     variable interests in VIES created before February 1, 2003, FIN 46 applied
     to public enterprises no later than the beginning of the first interim or
     annual period beginning after June 15, 2003.

     On October 9, 2003 the FASB decided to defer the implementation date of FIN
     46 to the fourth quarter instead of the third quarter. Pursuant to this
     deferral, public companies in the United States of America had to complete
     their evaluations of variable interest entities that existed prior to
     February 1, 2003, and the consolidation of those for which they are the
     primary beneficiary for financial statements issued for the first period
     ending after December 15, 2003. For calendar year companies, consolidation
     of previously existing variable interest entities was required in their
     December 31, 2003 financial statements. This deferral did not affect the
     implementation date for many foreign private issuers, which continued to be
     the beginning of the first annual period ending after December 15, 2003.

     In December 2003 FIN 46 was substantially revised and a new interpretation
     FIN 46 (revised) was issued. The key differences between FIN 46 (revised)
     and its predecessor FIN 46 include:



                                      F-37
<PAGE>


          1.   FIN 46R now scopes out many - but not all - businesses, as that
               term is defined in the Interpretation. A business - assuming it
               is scoped out of FIN 46R - should be consolidated with its
               accounting parent (if it has one) only when required by
               longstanding, conventional consolidation guidance, most notably
               Accounting Research Bulletin No. 51, Consolidated Financial
               Statements (ARB 51). Under FIN 46, any business potentially could
               have been a VIE (and, if so, subject to the Interpretation's
               unique consolidation requirements) depending on the design of the
               business' capital structure and other factors. Note that an
               entity whose primary activity is asset-backed financing or who
               acts as a single-lessee leasing entity cannot qualify for the
               scope exemption in FIN 46R, even if it would otherwise be a
               business. If such an entity is a VIE, it is covered by FIN 46R's
               consolidation requirements.

          2.   FASB partially delayed FIN 46's effective date (for most public
               companies until no later than the end of the first reporting
               period ending after March 15, 2004. The delay notwithstanding,
               public companies must apply either FIN 46 or FIN 46R to
               special-purpose entities (SPEs) no later than the end of the
               first reporting period ending after December 15, 2003. For many
               foreign private issuers the effective date continues to be the
               beginning of the first annual period ending after December 15,
               2003. For SPEs created by foreign private issuers after February
               1, 2003, however, the effective date is no later than the end of
               the first reporting period ending after December 15, 2003.

     Based on an initial assessment of the provisions and requirements of FIN
     46R, the Company believes that the implementation of this statement will
     not result in any impact to the Company's consolidated financial
     statements.


27.  VALUATION AND QUALIFYING ACCOUNTS

     Following are disclosures regarding the Company's valuation and qualifying
     accounts:

<TABLE>
                                                                           Year ended December 31,
                                                             -----------------------------------------------------
                        Description                            2001          2002          2003           2003
                                                             ---------     ---------     ----------     ----------
                                                                R$            R$            R$             US$
                                                             ---------     ---------     ----------     ----------
<S>                                                          <C>           <C>           <C>            <C>
      Reserve for contingencies:
      --------------------------

        Balances as of beginning of the year                   21,162        27,037         35,847         12,407
            Charges to costs and expenses                       8,099        13,682         15,537          5,378
            Deductions                                         (2,224)       (4,872)        (5,657)        (1,958)
                                                             ---------     ---------     ----------     ----------
        Balances as of end of the year                         27,037        35,847         45,727         15,827
                                                             =========     =========     ==========     ==========

      Allowance for doubtful accounts:
      --------------------------------

        Balances as of beginning of the year                    3,053         4,155          5,591          1,935
            Charges to expenses, net of reversions              1,102         1,436           (128)           (44)
                                                             ---------     ---------     ----------     ----------
        Balances as of end of the year                          4,155         5,591          5,463          1,891
                                                             =========     =========     ==========     ==========
</TABLE>



                                      F-38
<PAGE>


<TABLE>
      Depreciation:
      -------------

<S>                                                          <C>           <C>           <C>            <C>
        Balances as of beginning of the year                   65,440        64,388         50,239         17,389
            Vehicles acquisitions                              43,995        31,062         37,222         12,882
            Vehicles written-off as a result of sale          (44,669)      (44,969)       (31,259)       (10,819)
            Vehicles written-off as a result of theft            (378)         (242)           (89)           (31)
                                                             ---------     ---------     ----------     ----------
        Balances as of end of the year                         64,388        50,239         56,113         19,421
                                                             =========     =========     ==========     ==========
</TABLE>


                                      F-39
<PAGE>


28. FINANCIAL  INFORMATION FOR SUBSIDIARY  GUARANTORS
-----------------------------------------------------

Localiza's US$100 million 10.25% Senior Notes are jointly and severally,
irrevocably and fully and unconditionally guaranteed on a senior basis by all of
Localiza's direct and indirect subsidiaries. Presented below is condensed
consolidating financial information for: i) Localiza on a parent company only
basis; ii) the Wholly Owned Guarantor Subsidiaries (Total Fleet S.A. and Prime
Prestadora de Servicos S.A.); iii) the Majority-Owned Guarantor Subsidiaries
(Localiza Franchising S.A. and Localiza Master Franchisee Argentina S.A.); iv)
Eliminations; and v) Consolidated Localiza S.A. and subsidiaries.

The equity method of accounting has been used by Localiza with respect to
investments in its subsidiaries.

Separate financial statements have been presented for Localiza Franchising S.A.
and Localiza Master Franchisee Argentina S.A. as of December 31, 2003 and 2002
and for each of the three years in the period ended December 31, 2003.



                                      F-40
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS

CONSOLIDATED BALANCE SHEET - AS OF DECEMBER 31, 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


<TABLE>
A  S  S  E  T  S                                                 Guarantor Subsidiaries
----------------                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CURRENT ASSETS:
    Cash and cash equivalents                        106,800       51,890          574          --         159,264
    Accounts receivable, net                          34,531       11,141        1,327          (100)       46,899
    Revenue-earning vehicles, net                    201,643       76,766         --            --         278,409
    Deferred income tax and social contribution        1,790        1,112            7          --           2,909
    Other                                              8,753        1,098          462        (1,339)        8,974
                                                    --------     --------     --------      --------      --------
                                                     353,517      142,007        2,370        (1,439)      496,455
                                                    --------     --------     --------      --------      --------
NONCURRENT ASSETS:
    Revenue-earning vehicles, net                       --        110,452         --            --         110,452
    Escrow deposits                                   17,890        1,107          238          --          19,235
    Deferred income tax and social contribution       11,254        1,171           61          --          12,486
    Other                                                270         --            270           (50)          490
                                                    --------     --------     --------      --------      --------
                                                      29,414      112,730          569           (50)      142,663
                                                    --------     --------     --------      --------      --------

INVESTMENTS                                          210,840         --           --        (210,840)         --
                                                    --------     --------     --------      --------      --------

PROPERTY AND EQUIPMENT, NET                           18,068          415           98          --          18,581
                                                    --------     --------     --------      --------      --------

GOODWILL                                               4,704         --           --            --           4,704
                                                    --------     --------     --------      --------      --------

TOTAL ASSETS                                         616,543      255,152        3,037      (212,329)      662,403
                                                    ========     ========     ========      ========      ========
</TABLE>



                                      F-41
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS

CONSOLIDATED BALANCE SHEET - AS OF DECEMBER 31, 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CURRENT LIABILITIES:
    Loans and financing                                8,309         --           --            --           8,309
    Interest payable on long-term debt                 5,410         --           --            --           5,410
    Accounts payable                                  54,783       26,719          268          (100)       81,670
    Payroll and related charges                        8,849        2,068          645          --          11,562
    Income tax and social contribution                  --            559          395          --             954
    Taxes, other than on income                        4,021          528           27          --           4,576
    Deferred income tax and social contribution        3,455        2,901         --            --           6,356
    Advances from customers                            3,923          924         --            --           4,847
    Other                                                829        1,064          614        (1,389)        1,118
                                                    --------     --------     --------      --------      --------
                                                      89,579       34,763        1,949        (1,489)      124,802
                                                    --------     --------     --------      --------      --------
NONCURRENT LIABILITIES:
    Long-term debt                                   213,512         --           --            --         213,512
    Unrealized loss on derivatives                    19,072         --           --            --          19,072
    Reserve for contingencies                         39,653        5,225          849          --          45,727
    Deferred income tax and social contribution       10,265        4,175         --            --          14,440
    Other                                              1,246          356           15          --           1,617
                                                    --------     --------     --------      --------      --------
                                                     283,748        9,756          864          --         294,368
                                                    --------     --------     --------      --------      --------

MINORITY INTEREST                                       --           --           --              17            17
                                                    --------     --------     --------      --------      --------

SHAREHOLDERS' EQUITY:
    Capital stock                                    153,693      121,964          200      (122,164)      153,693
    Accumulated earnings                              89,523       88,669           24       (88,693)       89,523
                                                    --------     --------     --------      --------      --------
                                                     243,216      210,633          224      (210,857)      243,216
                                                    --------     --------     --------      --------      --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
                                                     616,543      255,152        3,037      (212,329)      662,403
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-42
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS) FOR THE
YEAR ENDED DECEMBER 31, 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
NET REVENUES:
    Car rental                                       156,862         --           --          (1,571)      155,291
    Fleet management                                    --        120,683         --            (374)      120,309
    Franchising                                         --           --          5,456          --           5,456
    Used car sales                                   187,491       63,990         --            (503)      250,978
                                                    --------     --------     --------      --------      --------
       Total net revenues                            344,353      184,673        5,456        (2,448)      532,034
                                                    --------     --------     --------      --------      --------

EXPENSES AND COSTS:
    Direct operating                                 (59,888)     (30,646)      (2,718)        1,767       (91,485)
    Cost of used car sales                          (157,041)     (49,538)        --            --        (206,579)
    Taxes on revenues                                (10,101)      (6,015)        (221)         --         (16,337)
    Selling, general, administrative and other       (44,664)     (21,244)        (175)          681       (65,402)
    Depreciation of vehicles                         (14,225)     (22,997)        --            --         (37,222)
    Other depreciation and amortization               (3,670)        (114)         (57)         --          (3,841)
                                                    --------     --------     --------      --------      --------
       Total operating expenses and costs           (289,589)    (130,554)      (3,171)        2,448      (420,866)
                                                    --------     --------     --------      --------      --------

     Equity                                           40,632         --           --         (40,632)         --
                                                    --------     --------     --------      --------      --------
       Operating income                               95,396       54,119        2,285       (40,632)      111,168
                                                    --------     --------     --------      --------      --------

FINANCIAL EXPENSES, NET                               35,702        4,896           79          --          40,677

OTHER NONOPERATING (EXPENSES) INCOME, NET                 73           52          (28)         --              97
                                                    --------     --------     --------      --------      --------
       Income before taxes and minority interest     131,171       59,067        2,336       (40,632)      151,942
                                                    --------     --------     --------      --------      --------

INCOME TAX AND SOCIAL CONTRIBUTION:
    Current                                           (2,109)     (20,361)        (786)         --         (23,256)
    Deferred                                         (23,422)         625         (143)         --         (22,940)
                                                    --------     --------     --------      --------      --------
                                                     (25,531)     (19,736)        (929)         --         (46,196)
                                                    --------     --------     --------      --------      --------
       Income before minority interest               105,640       39,331        1,407       (40,632)      105,746

MINORITY INTEREST                                       --           --           --            (106)         (106)
                                                    --------     --------     --------      --------      --------
       Net income                                    105,640       39,331        1,407       (40,738)      105,640
                                                    ========     ========     ========      ========      ========

OTHER COMPREHENSIVE INCOME (LOSS):
    Total change in market value of marketable
      securities                                         501         --           --            --             501
    Reclassification adjustment of realized gains        219         --           --            --             219
                                                    --------     --------     --------      --------      --------
    Unrealized gains (losses) on marketable
      securities                                         720         --           --            --             720
    Deferred income tax and social contribution
       on unrealized gains (losses)                     (245)        --           --            --            (245)
                                                    --------     --------     --------      --------      --------
    Other comprehensive income (loss)                    475         --           --            --             475
                                                    --------     --------     --------      --------      --------
       Comprehensive income                          106,115         --           --            --         106,115
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-43
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES GUARANTORS
                                                                             1/2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                       Guarantor
                                                                      Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                        105,640       39,331        1,407       (40,738)      105,640
     Adjustments to reconcile net income to net
      cash provided by (used in) operating
      activities:
          Depreciation and amortization (including
            goodwill)                                 17,895       23,111           57          --          41,063
          Vehicles written-off as a result of theft    1,093          447         --            --           1,540
          Deferred taxes on income                    23,422         (625)         143          --          22,940
          Provision for doubtful accounts             (1,328)       1,190           10          --            (128)
          Provision for contingencies                 13,442        1,952          143          --          15,537
          Realized gains (losses) on sale of
            marketable securities                        219         --           --            --             219
          Exchange variation, net                    (46,896)        --           --            --         (46,896)
          Unrealized (gain) loss on derivatives        7,016         --           --            --           7,016
          Equity                                     (40,632)        --           --          40,632          --
          Other                                         (421)         113         (252)          106          (454)

(Increase) decrease in operating assets:
   Accounts receivable                                 4,045        2,364         (132)         (331)        5,946
   Revenue-earning vehicles-
           New acquisitions                         (186,799)    (101,562)        --            --        (288,361)
           Cost of used car sales                    159,717       51,459         --            --         211,176
   Escrow deposits                                      (483)         234          (11)         --            (260)
   Accrued interest income on marketable securities     (759)        --           --            --            (759)
   Other                                              (1,731)         416          (95)       (1,030)       (2,440)

Increase (decrease) in operating liabilities:
   Accounts payable                                   43,201       19,403          (83)          331        62,852
   Payroll and related charges                         1,290           95          110          --           1,495
   Income tax and social contribution                   --            317          177          --             494
   Taxes, other than on income                         1,005           16            5          --           1,026
   Advances from customers                               630          339         --            --             969
   Reserve for contingencies                          (5,088)        (537)         (32)         --          (5,657)
   Loans and debt - accrued interest expense, net       (660)        --           --            --            (660)
   Other                                                (199)        (104)         551            74           322
                                                    --------     --------     --------      --------      --------
Net cash provided by (used in) operating activities   93,619       37,959        1,998          (956)      132,620
                                                    --------     --------     --------      --------      --------
</TABLE>


                                      F-44
<PAGE>


                                                                             2/2

<TABLE>
                                                                       Guarantor
                                                                      Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sales of marketable securities      11,798         --           --            --          11,798
    Additions to property and equipment, net          (7,157)         (77)         (62)         --          (7,296)
                                                    --------     --------     --------      --------      --------
Net cash provided by investing activities              4,641          (77)         (62)         --           4,502
                                                    --------     --------     --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Short-term loans:
       Proceeds                                       45,820       11,634         --            --          57,454
       Repayments                                    (37,548)     (11,634)        --            --         (49,182)
    Transaction with related parties:
       Capital increase                               17,970         --           --            --          17,970
       Cash dividends                                (54,350)        --           --            --         (54,350)
       Interest on capital                           (21,141)        --           --            --         (21,141)
       Other                                           6,822       (4,461)      (3,317)          956          --
                                                    --------     --------     --------      --------      --------
Net cash used in financing activities                (42,427)      (4,461)      (3,317)          956       (49,249)
                                                    --------     --------     --------      --------      --------

NET INCREASE  IN CASH AND CASH EQUIVALENTS            55,833       33,421       (1,381)         --          87,873

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR
                                                      50,967       18,469        1,955          --          71,391
                                                    --------     --------     --------      --------      --------

CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                             106,800       51,890          574          --         159,264
                                                    ========     ========     ========      ========      ========

Supplemental disclosures of cash flow information:

Cash paid during the year for:
    Interest                                          24,381           54         --            --          24,435
    Income tax and social contribution                 3,170       20,311          602          --          24,083
                                                    --------     --------     --------      --------      --------
                                                      27,551       20,365          602          --          48,518
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-45
<PAGE>


LOCALIZA RENT A CAR S.A. AND SUBSIDIARIES GUARANTORS

CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


<TABLE>
A  S  S  E  T  S                                                 Guarantor Subsidiaries
----------------                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CURRENT ASSETS:
    Cash and cash equivalents                         50,967       18,469        1,955          --          71,391
    Available for sale marketable securities          11,078         --           --            --          11,078
    Accounts receivable, net                          37,248       12,945        1,312          (431)       51,074
    Revenue-earning vehicles, net                    189,879       73,525         --            --         263,404
    Deferred income tax and social contribution        1,329          256         --            --           1,585
    Other                                             12,377        1,514          206        (8,175)        5,922
                                                    --------     --------     --------      --------      --------
                                                     302,878      106,709        3,473        (8,606)      404,454
                                                    --------     --------     --------      --------      --------
NONCURRENT ASSETS:
    Revenue-earning vehicles, net                       --         87,034         --            --          87,034
    Escrow deposits                                   17,407        1,341          227          --          18,975
    Deferred income tax and social contribution       32,297          976          204          --          33,477
    Other                                              1,086        1,750          166          (197)        2,805
                                                    --------     --------     --------      --------      --------
                                                      50,790       91,101          597          (197)      142,291
                                                    --------     --------     --------      --------      --------

INVESTMENTS                                          171,171         --           --        (171,171)         --
                                                    --------     --------     --------      --------      --------

PROPERTY AND EQUIPMENT, NET                           14,581          452           93          --          15,126
                                                    --------     --------     --------      --------      --------

GOODWILL                                               4,704         --           --            --           4,704
                                                    --------     --------     --------      --------      --------

TOTAL ASSETS                                         544,124      198,262        4,163      (179,974)      566,575
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-46
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUAARANTORS

CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CURRENT LIABILITIES:
    Interest payable on long-term debt                 6,616         --           --            --           6,616
    Accounts payable                                  11,582        7,316          351          (431)       18,818
    Payroll and related charges                        7,559        1,973          535          --          10,067
    Income tax and social contribution                  --            242          218          --             460
    Taxes, other than on income                        3,016          512           22          --           3,550
    Deferred income tax and social contribution        4,257        3,045         --            --           7,302
    Advances from customers                            3,293          585         --            --           3,878
    Other                                              1,028        6,929        1,074        (8,416)          615
                                                    --------     --------     --------      --------      --------
                                                      37,351       20,602        2,200        (8,847)       51,306
                                                    --------     --------     --------      --------      --------
NONCURRENT LIABILITIES:
    Long-term debt                                   261,111         --           --            --         261,111
    Unrealized loss on derivatives                    12,031         --           --            --          12,031
    Reserve for contingencies                         31,299        3,810          738          --          35,847
    Deferred income tax and social contribution        6,378        3,605         --            --           9,983
    Other                                              1,332          243            8          --           1,583
                                                    --------     --------     --------      --------      --------
                                                     312,151        7,658          746          --         320,555
                                                    --------     --------     --------      --------      --------

MINORITY INTEREST                                       --           --           --              92            92
                                                    --------     --------     --------      --------      --------

SHAREHOLDERS' EQUITY:
    Capital stock                                    135,723      121,164        1,200      (122,364)      135,723
    Accumulated earnings                              59,374       48,838           17       (48,855)       59,374
    Accumulated other comprehensive
         income (loss)                                  (475)        --           --            --            (475)
                                                    --------     --------     --------      --------      --------
                                                     194,622      170,002        1,217      (171,219)      194,622
                                                    --------     --------     --------      --------      --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
                                                     544,124      198,262        4,163      (179,974)      566,575
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-47
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS) FOR THE
YEAR ENDED DECEMBER 31, 2002
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                       Guarantor
                                                                      Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
NET REVENUES:
    Car rental                                       164,001         --           --          (1,406)      162,595
    Fleet management                                    --        118,969         --            (187)      118,782
    Franchising                                         --           --          5,111          --           5,111
    Used car sales                                   129,935       68,668         --          (8,127)      190,476
                                                    --------     --------     --------      --------      --------
       Total net revenues                            293,936      187,637        5,111        (9,720)      476,964
                                                    --------     --------     --------      --------      --------

EXPENSES AND COSTS:
    Direct operating                                 (55,916)     (31,860)      (2,648)        1,566       (88,858)
    Cost of used car sales                          (108,744)     (50,814)        --           3,288      (156,270)
    Taxes on revenues                                (13,482)      (5,920)        (176)         --         (19,578)
    Selling, general, administrative and other       (45,345)     (21,757)        (246)        4,866       (62,482)
    Depreciation of vehicles                         (15,110)     (15,952)        --            --         (31,062)
    Other depreciation and amortization               (3,278)         (93)         (55)         --          (3,426)
                                                    --------     --------     --------      --------      --------
       Total operating expenses and costs           (241,875)    (126,396)      (3,125)        9,720      (361,676)
                                                    --------     --------     --------      --------      --------

     Equity                                           46,025         --           --         (46,025)         --
                                                    --------     --------     --------      --------      --------
       Operating income                               98,086       61,241        1,986       (46,025)      115,288
                                                    --------     --------     --------      --------      --------

FINANCIAL EXPENSES, NET                              (88,901)       5,864          223          --         (82,814)
OTHER NONOPERATING (EXPENSES) INCOME, NET               (118)           1           (8)         --            (125)
                                                    --------     --------     --------      --------      --------
       Income before taxes and minority interest       9,067       67,106        2,201       (46,025)       32,349
                                                    --------     --------     --------      --------      --------

INCOME TAX AND SOCIAL CONTRIBUTION:
    Current                                              (18)     (18,576)        (596)         --         (19,190)
    Deferred                                          17,600       (3,906)         (89)         --          13,605
                                                    --------     --------     --------      --------      --------
                                                      17,582      (22,482)        (685)         --          (5,585)
                                                    --------     --------     --------      --------      --------
       Income before minority interest                26,649       44,624        1,516       (46,025)       26,764

MINORITY INTEREST                                       --           --           --            (115)         (115)
                                                    --------     --------     --------      --------      --------
       Net income                                     26,649       44,624        1,516       (46,140)       26,649
                                                    ========     ========     ========      ========      ========

OTHER COMPREHENSIVE INCOME (LOSS):
    Total change in market value of marketable
      securities                                         269         --           --            --             269
    Reclassification adjustment of realized gains     (1,566)        --           --            --          (1,566)
                                                    --------     --------     --------      --------      --------
    Unrealized gains (losses) on marketable
      securities                                      (1,297)        --           --            --          (1,297)
    Deferred income tax and social contribution

       on unrealized gains (losses)                      436         --           --            --             436
                                                    --------     --------     --------      --------      --------
    Other comprehensive income (loss)                   (861)        --           --            --            (861)
                                                    --------     --------     --------      --------      --------
       Comprehensive income                           25,788         --           --            --          25,788
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-48
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS
                                                                             1/2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                       Guarantor
                                                                      Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                         26,649       44,624        1,516       (46,140)       26,649
     Adjustments to reconcile net income to net
      cash provided by (used in) operating
      activities:
          Depreciation and amortization (including
            goodwill)                                 18,388       16,045           55          --          34,488
          Vehicles written-off as a result of theft    1,181          860         --            --           2,041
          Deferred taxes on income                   (17,600)       3,906           89          --         (13,605)
          Provision for doubtful accounts              1,155          285           (4)         --           1,436
          Provision for contingencies                 11,328        2,282           72          --          13,682
          Realized gains (losses) on sale of
            marketable securities                     (1,566)        --           --            --          (1,566)
          Realized gains on derivatives               (1,891)        --           --            --          (1,891)
          Exchange variation, net                     85,044         --           --            --          85,044
          Unrealized (gain) loss on derivatives      (14,204)        --           --            --         (14,204)
          Equity                                     (46,025)        --           --          46,025          --
          Other                                          268           37         --               2           307

(Increase) decrease in operating assets:
   Accounts receivable                                (5,850)       2,786          (56)           77        (3,043)
   Revenue-earning vehicles-
           New acquisitions                         (147,685)     (67,919)        --            --        (215,604)
           Cost of used car sales                    110,883       53,963         --            --         164,846
   Escrow deposits                                      (745)        (517)         (93)         --          (1,355)
   Accrued interest income on marketable securities    1,978         --           --            --           1,978
   Other                                              58,914        2,396         (190)      (53,037)        8,083

Increase (decrease) in operating liabilities:
   Accounts payable                                   (6,917)       1,412           85           (80)       (5,500)
   Payroll and related charges                         1,085          133          164          --           1,382
   Income tax and social contribution                   (199)         238          207          --             246
   Taxes, other than on income                         2,076           95          (17)         --           2,154
   Advances from customers                               343          446         --            --             789
   Reserve for contingencies                          (4,250)         (37)        (585)         --          (4,872)
   Loans and debt - accrued interest expense, net      2,086         --           --            --           2,086
   Other                                                 132       (1,545)        (176)        1,369          (220)
                                                    --------     --------     --------      --------      --------

Net cash provided by (used in) operating activities   74,578       59,490        1,067       (51,784)       83,351
                                                    --------     --------     --------      --------      --------
</TABLE>


                                      F-49
<PAGE>


                                                                             2/2

<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of marketable securities                (5,717)        --           --            --          (5,717)
    Proceeds from sales of marketable securities      13,210         --           --            --          13,210
    Additions to property and equipment, net          (5,852)        (158)          (8)         --          (6,018)
                                                    --------     --------     --------      --------      --------
Net cash provided by investing activities              1,641         (158)          (8)         --           1,475
                                                    --------     --------     --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Short-term loans:
       Proceeds                                       32,853        6,333         --            --          39,186
       Repayments                                    (55,317)     (11,078)        --              14       (66,381)
    Transaction with related parties:
       Capital increase                               12,800         --           --            --          12,800
       Cash dividends                                (20,000)     (44,239)        (582)       44,821       (20,000)
       Interest on capital                           (15,059)        --           --            --         (15,059)
       Other                                          (6,585)        (500)         136         6,949
                                                    --------     --------     --------      --------      --------
Net cash used in financing activities                (51,308)     (49,484)        (446)       51,784       (49,454)
                                                    --------     --------     --------      --------      --------

NET INCREASE  IN CASH AND CASH EQUIVALENTS            24,911        9,848          613          --          35,372

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                           26,056        8,621        1,342          --          36,019
                                                    --------     --------     --------      --------      --------

CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                              50,967       18,469        1,955          --          71,391
                                                    ========     ========     ========      ========      ========

Supplemental disclosures of cash flow information:

Cash paid during the year for:
    Interest                                          22,387          127         --            --          22,514
    Income tax and social contribution                  --         15,664          329          --          15,993
                                                    --------     --------     --------      --------      --------
                                                      22,387       15,791          329          --          38,507
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-50
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS) FOR THE
YEAR ENDED DECEMBER 31, 2001
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
NET REVENUES:
    Car rental                                       145,448         --           --          (1,195)      144,253
    Fleet management                                    --        120,463         --            (234)      120,229
    Franchising                                         --           --          5,056          --           5,056
    Used car sales                                    97,476       57,247         --          (3,816)      150,907
                                                    --------     --------     --------      --------      --------
       Total net revenues                            242,924      177,710        5,056        (5,245)      420,445
                                                    --------     --------     --------      --------      --------

EXPENSES AND COSTS:
    Direct operating                                 (46,646)     (28,463)      (3,424)        1,474       (77,059)
    Cost of used car sales                           (79,490)     (39,165)        --            --        (118,655)
    Taxes on revenues                                (11,880)      (5,743)        (172)         --         (17,795)
    Selling, general, administrative and other       (37,041)     (18,750)        (418)        3,771       (52,438)
    Depreciation of vehicles                         (17,114)     (26,881)        --            --         (43,995)
    Goodwill amortization                             (1,010)        --           (489)         --          (1,499)
    Other depreciation and amortization               (2,416)        (128)         (90)         --          (2,634)
                                                    --------     --------     --------      --------      --------
       Total operating expenses and costs           (195,597)    (119,130)      (4,593)        5,245      (314,075)
                                                    --------     --------     --------      --------      --------

     Equity                                           43,388         --           --         (43,388)         --
                                                    --------     --------     --------      --------      --------
       Operating income                               90,715       58,580          463       (43,388)      106,370
                                                    --------     --------     --------      --------      --------

FINANCIAL EXPENSES, NET                              (50,590)         198          (72)         --         (50,464)

OTHER NONOPERATING (EXPENSES) INCOME, NET              4,494            1          (20)         --           4,475
                                                    --------     --------     --------      --------      --------
       Income before taxes and minority interest      44,619       58,779          371       (43,388)       60,381
                                                    --------     --------     --------      --------      --------

INCOME TAX AND SOCIAL CONTRIBUTION:
    Current                                             (604)     (13,166)        (337)         --         (14,107)
    Deferred                                            (127)      (2,226)         (33)         --          (2,386)
                                                    --------     --------     --------      --------      --------
                                                        (731)     (15,392)        (370)         --         (16,493)
                                                    --------     --------     --------      --------      --------
       Income before minority interest                43,888       43,387            1       (43,388)       43,888



Cumulative effect of a change in accounting
    principle, net of taxes of R$467                    (907)        --           --            --            (907)
                                                    --------     --------     --------      --------      --------
       Net income                                     42,981       43,387            1       (43,388)       42,981
                                                    ========     ========     ========      ========      ========

OTHER COMPREHENSIVE INCOME (LOSS):
    Total change in market value of marketable
       securities                                     15,753         --           --            --          15,753
    Reclassification adjustment of realized gains    (15,737)        --           --            --         (15,737)
                                                    --------     --------     --------      --------      --------
    Unrealized gains (losses) on marketable
       securities                                         16         --           --            --              16
    Deferred income tax and social contribution
       on unrealized gains (losses)                       (5)        --           --            --              (5)
                                                    --------     --------     --------      --------      --------
    Other comprehensive income (loss)                     11         --           --            --              11
                                                    --------     --------     --------      --------      --------
       Comprehensive income                           42,992         --           --            --          42,992
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-51
<PAGE>


FINANCIAL INFORMATION FOR SUBSIDIARIES GUARANTORS
                                                                             1/2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------

<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                         42,981       43,387            1       (43,388)       42,981
     Adjustments to reconcile net income to net
     cash provided by (used in) operating
     activities:
          Depreciation and amortization (including
            goodwill)                                 20,540       27,009          224           355        48,128
          Vehicles written-off as a result of theft    1,129        1,364         --            --           2,493
          Deferred taxes on income                       127        2,226           33          --           2,386
          Provision for doubtful accounts                680          385           37          --           1,102
          Reversal of compulsory loans, net              383         --           --            --             383
          Gain on sale of land                          --           --           --          (4,639)       (4,639)
          Provision for contingencies                  6,411          982          706          --           8,099
          Realized gains (losses) on sale of
            marketable securities                    (15,737)        --           --            --         (15,737)
          Realized gains on derivatives               (6,722)        --           --            --          (6,722)
          Exchange variation, net                     29,299           29         --            --          29,328
          Unrealized (gain) loss on derivatives       26,146         --           --              89        26,235
          Equity                                     (43,388)        --           --          43,388          --
          Other                                          438          (88)         287          (355)          282

(Increase) decrease in operating assets:
   Accounts receivable                               (15,206)      (4,375)         373          (533)      (19,741)
   Revenue-earning vehicles-
           New acquisitions                         (151,186)     (96,341)        --            --        (247,527)
           Cost of used car sales                     81,293       40,088         --            --         121,381
   Escrow deposits                                    (2,005)        (322)         (29)         --          (2,356)
   Compulsory loans                                    1,597         --           --            --           1,597
   Accrued interest income on marketable securities   (1,465)        --           --            --          (1,465)
   Other                                              31,992       (3,681)          46       (18,372)        9,985

Increase (decrease) in operating liabilities:
   Accounts payable                                    7,814       (2,618)         102           536         5,834
   Payroll and related charges                         1,022          268          (52)         --           1,238
   Income tax and social contribution                    198       (1,385)        (175)         --          (1,362)
   Taxes, other than on income                        (1,978)         (24)         (64)         --          (2,066)
   Advances from customers                             2,948         (740)        (159)          568         2,617
   Reserve for contingencies                          (1,806)         (25)        (393)         --          (2,224)
   Loans and debt - accrued interest expense, net        (51)        --           --            --             (51)
   Other                                                 316         (237)         (76)         (517)         (514)
                                                    --------     --------     --------      --------      --------
Net cash provided by (used in) operating activities   15,770        5,902          861       (22,868)         (335)
                                                    --------     --------     --------      --------      --------
</TABLE>


                                      F-52
<PAGE>


                                                                             2/2

<TABLE>
                                                                 Guarantor Subsidiaries
                                                                 ----------------------
                                                    Parent       Wholly-      Majority-
                                                    Company       Owned        Owned      Eliminations  Consolidated
                                                    --------     --------     ---------   ------------  ------------
<S>                                                 <C>          <C>          <C>         <C>           <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of marketable securities               (16,733)        --           --            --         (16,733)
    Proceeds from sales of marketable securities      61,365         --           --            --          61,365
    Additions to property and equipment, net          (6,986)        (258)          (2)         --          (7,246)
    Acquisitions of former franchisees                (1,329)        --           --            --          (1,329)
    Other                                            (10,980)        --           --          10,980          --
                                                    --------     --------     --------      --------      --------
Net cash provided by investing activities             25,337         (258)          (2)       10,980        36,057
                                                    --------     --------     --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Short-term loans:
       Proceeds                                       72,434       41,403         --            --         113,837
       Repayments                                    (79,197)     (40,860)        --            --        (120,057)
    Transaction with related parties:
       Capital increase                                5,400       10,980         --         (10,980)        5,400
       Cash dividends                                (15,000)     (10,000)         (46)       10,046       (15,000)
       Interest on capital                            (6,353)     (12,800)        --          12,800        (6,353)
       Other                                          (1,848)       1,920          (94)           22          --
                                                    --------     --------     --------      --------      --------
Net cash used in financing activities                (24,564)      (9,357)        (140)       11,888       (22,173)
                                                    --------     --------     --------      --------      --------

NET INCREASE  IN CASH AND CASH EQUIVALENTS            16,543       (3,713)         719          --          13,549

CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                            9,513       12,334          623          --          22,470
                                                    --------     --------     --------      --------      --------

CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                              26,056        8,621        1,342          --          36,019
                                                    ========     ========     ========      ========      ========

Supplemental disclosures of cash flow information:

Cash paid during the year for:
    Interest                                          26,827          715         --            --          27,542
    Income tax and social contribution                  --         16,410          406          --          16,816
                                                    --------     --------     --------      --------      --------
                                                      26,827       17,125          406          --          44,358
                                                    ========     ========     ========      ========      ========
</TABLE>


                                      F-53
<PAGE>


Localiza Franchising S.A. and Subsidiary

Financial Statements Together with Report of Independent Registered
Public Accounting Firm

Expressed in Brazilian reais

As of December 31, 2002 and 2003 and for the
three years in the period ended December 31, 2003

Deloitte Touche Tohmatsu Auditores Independentes


<PAGE>


Report of Independent Registered Public Accounting Firm

To the Shareholders of
Localiza Franchising S.A.
Belo Horizonte - MG
-------------------


1.   We have audited the accompanying consolidated balance sheets of Localiza
     Franchising S.A., (the "Company"), a Brazilian corporation and subsidiary
     of Localiza Rent a Car S.A., as of December 31, 2002 and 2003 and the
     related consolidated statements of income, changes in shareholders' equity
     and cash flows for each of the three years in the period ended December 31,
     2003, all expressed in Brazilian reais. These consolidated financial
     statements are the responsibility of the Company's management. Our
     responsibility is to express an opinion on these consolidated financial
     statements based on our audits.

2.   We conducted our audits in accordance with the standards of the Public
     Company Accounting Oversight Board (United States). Those standards require
     that we plan and perform the audit to obtain reasonable assurance about
     whether the consolidated financial statements are free of material
     misstatement. An audit includes examining, on a test basis, evidence
     supporting the amounts and disclosures in the consolidated financial
     statements. An audit also includes assessing the accounting principles used
     and significant estimates made by management, as well as evaluating the
     overall consolidated financial statement presentation. We believe that our
     audits provide a reasonable basis for our opinion.

3.   In our opinion, the consolidated financial statements referred to above
     present fairly, in all material respects, the consolidated financial
     position of Localiza Franchising S.A. as of December 31, 2002 and 2003, and
     the results of its operations and cash flows for each of the three years in
     the period ended December 31, 2003, in conformity with accounting
     principles generally accepted in the United States of America.

4.   Our audits also comprehended the translation of Brazilian reais amounts
     into U.S. dollar amounts as of and for the year ended December 31, 2003,
     and, in our opinion, such translation has been made in conformity with the
     basis stated in Note 2 (d). Such U.S. dollar amounts are presented solely
     for the convenience of readers in the United States of America.



April 2, 2004

/s/ Deloitte Touche Tohmatsu


<PAGE>


LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


A S S E T S                                                December 31,
-----------                                         -------------------------
                                                     2002      2003      2003
                                                    -----     -----     -----
                                                      R$        R$        US$
                                                    -----     -----     -----
CURRENT ASSETS:
    Cash and cash equivalents                       1,955       574       199
    Accounts receivable, net                        1,312     1,327       459
    CEPIN (Note 10)                                    54      --        --
    Recoverable taxes                                  43       340       118
    Other                                             109       129        44
                                                    -----     -----     -----
                                                    3,473     2,370       820
                                                    -----     -----     -----

NONCURRENT ASSETS:
    Accounts receivable, net                         --         107        37
    Escrow deposits                                   227       238        82
    Receivable from related party                      94      --        --
    Deferred income tax and social contribution       204        61        21
    Recoverable taxes                                  72       163        57
                                                    -----     -----     -----
                                                      597       569       197
                                                    -----     -----     -----

OFFICE EQUIPMENT, NET                                  93        98        34
                                                    -----     -----     -----

TOTAL ASSETS                                        4,163     3,037     1,051
                                                    =====     =====     =====


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-56
<PAGE>


LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY                       December 31,
------------------------------------                -------------------------
                                                     2002      2003      2003
                                                    -----     -----     -----
                                                      R$        R$        US$
                                                    -----     -----     -----
CURRENT LIABILITIES:
    Accounts payable                                  351       268        93
    Payroll and related charges                       535       645       223
    Income tax and social contribution                218       395       137
    Taxes, other than on income                        22        27         9
    CEPIN (Note 10)                                  --         403       140
    Payable to related parties                        210        52        18
    Dividends payable                                 853      --        --
    Other                                              11       159        55
                                                    -----     -----     -----
                                                    2,200     1,949       675
                                                    -----     -----     -----

NONCURRENT LIABILITIES:
    Reserve for contingencies                         738       849       294
    Other                                               8        15         5
                                                    -----     -----     -----
                                                      746       864       299
                                                    -----     -----     -----

SHAREHOLDERS' EQUITY:
    Capital stock                                   1,200       200        69
    Accumulated earnings                               17        24         8
                                                    -----     -----     -----
                                                    1,217       224        77
                                                    -----     -----     -----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          4,163     3,037     1,051
                                                    =====     =====     =====


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-57
<PAGE>


LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
                                                                 Year ended December 31,
                                                        ------------------------------------------
                                                         2001        2002        2003        2003
                                                        ------      ------      ------      ------
                                                          R$          R$          R$          US$
                                                        ------      ------      ------      ------
<S>                                                     <C>         <C>         <C>         <C>
NET REVENUES:
    Royalties and advertising fees                       4,430       4,585       4,812       1,666
    Initial franchise fees                                 522         481         587         203
    Other services                                         104          45          57          20
                                                        ------      ------      ------      ------
       Total net revenues                                5,056       5,111       5,456       1,889
                                                        ------      ------      ------      ------
EXPENSES AND COSTS:
    Direct operating                                    (3,424)     (2,935)     (3,020)     (1,045)
    Taxes on revenues                                     (172)       (176)       (221)        (76)
    Selling, general, administrative and other            (418)       (246)       (175)        (61)
    Depreciation and amortization                          (90)        (55)        (57)        (20)
    Gain on settlement of liability under amnesty
       program (Note 11)                                  --           287        --          --
    Gain on social security contribution litigation
       (Note 6)                                           --          --           302         104
    Impairment of goodwill (Note 1 b)                     (355)       --          --          --
    Goodwill amortization                                 (134)       --          --          --
                                                        ------      ------      ------      ------
       Total operating expenses and costs               (4,593)     (3,125)     (3,171)     (1,098)
                                                        ------      ------      ------      ------
       Operating income                                    463       1,986       2,285         791
                                                        ------      ------      ------      ------
FINANCIAL (EXPENSES) INCOME, NET                           (72)        223          79          27
OTHER NONOPERATING EXPENSES, NET                           (20)         (8)        (28)         (9)
                                                        ------      ------      ------      ------
       Income before taxes                                 371       2,201       2,336         809
INCOME TAX AND SOCIAL CONTRIBUTION:
       Current                                            (337)       (596)       (786)       (273)
       Deferred                                            (33)        (89)       (143)        (49)
                                                        ------      ------      ------      ------
                                                          (370)       (685)       (929)       (322)
                                                        ------      ------      ------      ------
       Net income                                            1       1,516       1,407         487
                                                        ======      ======      ======      ======
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-58
<PAGE>


LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Stated in thousands of Brazilian reais)
--------------------------------------------------------------------------------


                                                        Accumulated
                                            Capital      earnings
                                             stock       (deficit)      Total
                                           ----------   -----------   ---------
BALANCES AT DECEMBER 31, 2000                1,200            71        1,271
     Cash dividends (Note 13)                 --             (30)         (30)
     Interest on capital (Note 13)            --            (106)        (106)
     Net income                               --               1            1
                                             -----         -----        -----
BALANCES AT DECEMBER 31, 2001                1,200           (64)       1,136
     Cash dividends (Note 13)                 --          (1,435)      (1,435)
     Net income                               --           1,516        1,516
                                             -----         -----        -----
BALANCES AT DECEMBER 31, 2002                1,200            17        1,217
     Capital reduction (Note 1 a)           (1,000)          --        (1,000)
     Cash dividends (Note 13)                 --          (1,400)      (1,400)
     Net income                               --           1,407        1,407
                                             -----         -----        -----
BALANCES AT DECEMBER 31, 2003                  200            24          224
                                             =====         =====        =====

The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-59
<PAGE>


                                                                             1/2
LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Stated in thousands of Brazilian reais and U.S. dollars)
--------------------------------------------------------------------------------


<TABLE>
                                                                 Year ended December 31,
                                                        ------------------------------------------
                                                         2001        2002        2003        2003
                                                        ------      ------      ------      ------
                                                          R$          R$          R$          US$
                                                        ------      ------      ------      ------
<S>                                                     <C>         <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                               1       1,516       1,407         487
      Adjustments to reconcile net income to net cash
         provided by operating activities:
             Depreciation and amortization (including
                  goodwill)                                224          55          57          20
             Impairment of goodwill                        355          --          --          --
             Deferred taxes on income                       33          89         143          49
             Provision for doubtful accounts                37          (4)         10           4
             Provision for contingencies                   706          72         143          49
             Gain on settlement of liability under
                  amnesty program                           --        (287)         --          --
             Gain on social security litigation             --          --        (259)        (90)
             Other                                         (68)         --           7           3
 (Increase) decrease in operating assets:
    Accounts receivable                                    373         (56)       (132)        (45)
    Escrow deposits                                        (29)        (93)        (11)         (4)
    Recoverable taxes                                       --          --        (129)        (45)
    Other                                                   46        (190)         34          12
Increase (decrease) in operating liabilities:
    Accounts payable                                       102          85         (83)        (29)
    Payroll and related charges                            (52)        164         110          38
    Income tax and social contribution                    (175)        207         177          61
    Taxes, other than on income                            (64)        (17)          5           2
    CEPIN                                                 (159)       (112)        403         140
    Reserve for contingencies                             (393)       (298)        (32)        (11)
    Other accounts payable                                 (76)        (64)        148          51
                                                        ------      ------      ------      ------
Net cash provided by operating activities                  861       1,067       1,998         692
                                                        ------      ------      ------      ------
</TABLE>


                                      F-60
<PAGE>


                                                                             2/2

<TABLE>
                                                                 Year ended December 31,
                                                        ------------------------------------------
                                                         2001        2002        2003        2003
                                                        ------      ------      ------      ------
                                                          R$          R$          R$          US$
                                                        ------      ------      ------      ------
<S>                                                     <C>         <C>         <C>         <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to office equipment, net                      (2)         (8)        (62)        (22)
                                                        ------      ------      ------      ------
 Net cash used in investing activities                      (2)         (8)        (62)        (22)
                                                        ------      ------      ------      ------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Transactions with related parties:
       Proceeds                                             98         182          94          33
       Repayments                                         (192)        (46)       (158)        (55)
       Capital reduction in cash                          --          --        (1,000)       (346)
       Dividends and interest on capital                   (46)       (582)     (2,253)       (780)
                                                        ------      ------      ------      ------
 Net cash used in financing activities                    (140)       (446)     (3,317)     (1,148)
                                                        ------      ------      ------      ------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       719         613      (1,381)       (478)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR             623       1,342       1,955         677
                                                        ------      ------      ------      ------

CASH AND CASH EQUIVALENTS AT
      END OF YEAR                                        1,342       1,955         574         199
                                                        ======      ======      ======      ======

Supplemental disclosures of cash flow information:

Cash paid during the year for:
    Income tax and social contribution                     406         329         602         208
                                                        ======      ======      ======      ======

Supplemental information of non-cash
financing activities:

    Dividends and interest on capital payable               90         853        --          --
                                                        ======      ======      ======      ======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------


                                      F-61
<PAGE>


LOCALIZA FRANCHISING S.A. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(Amounts expressed in thousands of Brazilian reais and U.S. dollars, unless
otherwise indicated)
--------------------------------------------------------------------------------


1.   THE COMPANY AND ITS OPERATIONS

     Localiza Franchising S.A. (the "Company" or "Franchising") (formerly
     Localiza Franchising Ltda.) is a Brazilian closely held corporation and a
     subsidiary of Localiza Rent a Car S.A. ("Localiza"). Its main activity is
     to manage the Localiza franchising business, referring to car rental and
     related services.

     In 2002, Franchising was a Brazilian limited liability Company. On May 1,
     2004, Franchising was changed to a closely held corporation. Its capital is
     shared between Localiza (92.5%) and Aristides Luciano Azevedo Newton
     (7.5%).

     As of December 31, 2003, franchisees comprise 238 unaudited locations (250
     - unaudited - in 2002). The Company selects franchisees in order to serve
     smaller markets, while major urban areas in Brazil are served by the 71
     (unaudited) (70 - unaudited - in 2002) Localiza owned locations. The
     Brazilian franchise locations are operated by a total of 78 (unaudited)
     (84 - unaudited - in 2002) franchisees.

     In 2003 and 2002, the Localiza network has 64 (unaudited) franchise
     locations outside Brazil, in 7 (6 in 2002) countries as follows: Bolivia,
     Ecuador, Mexico, Paraguay, Chile, Uruguay and Argentina, where the
     Company's franchisees have 34 (unaudited) (32 - unaudited - in 2002)
     locations.

     The international franchise locations are operated by 3 (unaudited) (4 -
     unaudited - in 2002) master franchisees and 32 (unaudited) (30 - unaudited
     - in 2002) franchisees, the largest of which owns 5 locations (unaudited)
     (6 - unaudited - in 2002).

     The Company grants exclusive rights to its franchisees for defined
     geographic areas pursuant to renewable contracts, which terms range from
     five to ten years. These contracts may be cancelled by either party upon 90
     days written notice. Brazilian franchisees generally pay the Company an
     initial fee plus royalties and an advertising fee based on gross revenues.
     Non-Brazilian franchisees pay royalties at varying rates, depending upon
     local market conditions. For the years ended December 31, 2001, 2002 and
     2003 aggregate net royalties from Brazilian franchisees amount to R$3,737,
     R$3,917 and R$4,099 or 84%, 85% and 85%, respectively, of total franchise
     royalties. Aggregate net royalties from non-Brazilian franchisees amount to
     R$693, R$668 and R$713 or 16%, 15% and 15%, respectively, of total
     franchise royalties. Revenue in Argentina represents 14.6%, 9.2% and 6.6%
     of the total consolidated revenues in 2001, 2002 and 2003 respectively.

     The Company oversees the quality of its franchise operations: (i) through
     rigorous qualifying procedures for accepting new franchisees; (ii) by
     providing training, comprehensive education and procedural manuals; and
     (iii) through periodic onsite inspections.


                                      F-62
<PAGE>


     The franchisee is responsible for the purchase, maintenance and sale of its
     fleet.

     (a)  Capital reduction

     As of May 1, 2003, the Company made a capital distribution amounting to
     R$1,000 totally paid in cash.

     (b)  Investment in subsidiary and affiliate

     On August 17, 1999, the Company acquired the remaining 60% of MFA -
     Localiza Master Franchisee Argentina S.A. ("MFA"), located in Argentina,
     for R$337. The subsidiary had negative net worth of R$330 that approximated
     its book value on the acquisition date. Goodwill arising from that
     acquisition, amounting to R$667, was being amortized over a 5-year period,
     from the acquisition date to 2001, when, as a result of the economic crisis
     in Argentina, an impairment charge was recorded to write-off the remaining
     balance of the goodwill.

     To fund the operations of MFA, Franchising made capital contributions
     amounting to R$91 and R$192 during the years ended December 31, 2000 and
     2001, respectively. These capital contributions were made in compliance
     with the Argentine law, section 205 of the Business Associations Law that
     requires the maintenance of a specified proportion between accumulated
     losses and capital stock.

     On July 31, 2002, MFA had its capital reduced in the amount of ARP172
     thousand (Argentine pesos), reestablishing the proportion required
     mentioned before.

     MFA is responsible for the commercialization of the "Localiza" trademark in
     Argentina through the sales of franchises and the collection of royalties.

     On May 1, 2003, Franchising sold its participation of 0.01% in Prime
     Prestadora de Servicos S.A. to Localiza for book value.

     (c)  Franchising spin-off

     On March 31, 2004, Franchising spun-off and generated a new company named
     Localiza Franchising Brasil S.A., currently responsible for the Brazilian
     franchising operations. Localiza Franchising just maintained recorded in
     its books the investment in MFA. The spun-off was maid based on the book
     value.

     (d)  Guarantee in Senior Notes Program

     The Company and MFA are guarantors of Localiza's Senior Notes program,
     which are unsecured obligations of Localiza, in the amount of US$100
     million, maturing on October 1, 2005. As a consequence, the Company is
     subject to certain restrictions contained in the Senior Notes program.
     These restrictive covenants will limit, except in certain circumstances,
     the ability of Localiza and subsidiaries to, among other things, declare
     any dividend or other similar distribution, make certain stock repurchases,
     make certain payments on subordinated indebtedness or make certain
     investments if, after giving effect to such actions, (i) a default or event
     of default under the Senior Notes indenture would have


                                      F-63
<PAGE>


     occurred and be continuing, (ii) Localiza and subsidiaries would be unable
     to incur additional indebtedness under the debt incurrence ratio test set
     forth in the indenture or (iii) the amount of all such payments exceeds an
     aggregate threshold amount. A default or event of default includes the
     failure of Localiza or its subsidiaries to observe or perform any covenant,
     whose covenants include limitations on the ability of the Localiza and
     subsidiaries to (i) incur certain additional indebtedness, (ii) create
     certain liens, (iii) enter into certain transactions with affiliates, (iv)
     engage in certain sale and leaseback transactions and (v) enter into
     certain merger, acquisition or sale transactions.

     As of the date of these consolidated financial statements, Management
     believes that the Company is in compliance with all of the covenants
     described above.


2.   BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

     (a)  Accounting records

          The Company's accounting records are maintained in Brazilian reais
          (R$), based on the criteria enacted by Brazilian Corporate Law. The
          consolidated financial statements prepared based on such accounting
          records and the Corporate Law criteria (Corporate Law Method financial
          statements) are the basis for determining income taxes and
          shareholders' rights, such as dividends.

          MFA's accounting records are maintained in Argentine Pesos (ARP) and
          translated to Brazilian reais at the exchange rate at the end of each
          balance sheet date, except for December 31, 2001, when the exchange
          rate used represented the first free-floating rate for which
          transactions could be settled after December 31, 2001. Such exchange
          rate was calculated by converting Pesos to U.S. dollars at a rate of
          $1.70 to US$1.00 and then to Brazilian reais at a rate of R$2.3204 to
          US$1.00. For all periods presented the effects of translation are
          immaterial.

     (b)  Price-level adjusted consolidated financial statements

          All financial information for periods ended after June 30, 1997 are
          presented at amounts price-level adjusted as of June 30, 1997, with
          any subsequent transactions included in nominal Brazilian reais.
          Effective July 1, 1997, the Company ceased restating its financial
          statements to recognize certain effects of changes in the purchasing
          power of Brazilian currency due to inflation, as Brazil ceased to be
          considered a highly inflationary economy as of such date.

     (c)  Presentation of the consolidated financial statements

          The consolidated financial statements have been prepared in accordance
          with accounting principles generally accepted in the United States of
          America, which differ in certain aspects from the accounting
          principles applied by the Company and its subsidiary in their
          consolidated financial statements prepared in accordance with
          accounting principles generally accepted in Brazil and


                                      F-64
<PAGE>


          Argentina or for other statutory purposes in Brazil and Argentina.

     (d)  Convenience translation of balances from Brazilian reais to U.S.
          dollars

          The accompanying consolidated financial statements in Brazilian reais
          were translated into U.S. dollars at the rate of R$2.8892 to US$1.00,
          the selling Commercial Market exchange rate reported by the Central
          Bank of Brazil, for December 31, 2003. Such translation was made
          solely for the convenience of the readers and should not be construed
          as a representation that the Brazilian reais amounts could have been
          converted into U.S. dollars at this or any other rate.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements were prepared in conformity with
     accounting principles generally accepted in the United States of America,
     based on the following accounting policies:

     (a)  Consolidation - The consolidated financial statements include the
          accounts of Franchising and MFA. All significant intercompany balances
          and transactions have been eliminated in consolidation.

     (b)  Cash and cash equivalents - Stated at cost or invested amount plus
          accrued interest up to the balance sheet dates.

     (c)  Allowance for doubtful accounts - Provided in an amount considered
          sufficient to cover eventual losses on accounts receivable,
          considering past experience, the current financial situation of the
          Company's customers and the status of past-due receivables.

     (d)  Office equipment - Stated at price-level adjusted acquisition cost for
          periods prior to June 30, 1997. Depreciation is calculated using the
          straight-line method at the annual rate of 20% for computers, 10% for
          other items.

     (e)  Goodwill - Corresponded to the excess of the purchase price over the
          book value of the remaining equity share in MFA on the acquisition
          date. It was being amortized over a 5-year period until December 31,
          2001, when, as a result of the economic crisis in Argentina, an
          impairment charge was recorded to write-off the remaining balance.

     (f)  Income tax and social contribution - The Company accounts for income
          taxes under the provisions of SFAS No. 109, "Accounting for
          Income Taxes", which requires the application of the comprehensive
          liability method of accounting for income taxes. SFAS No. 109
          requires recognition of deferred tax assets and liabilities for the
          estimated future tax consequences of events attributable to
          differences between the consolidated financial statement carrying
          amounts of existing assets and liabilities and their respective tax
          bases, and operating loss and tax credit carryforwards.

          Deferred tax assets and liabilities are measured using enacted tax
          rates in effect for the year in which those temporary differences are
          expected to be recovered or settled. Under


                                      F-65
<PAGE>


          SFAS No. 109, the effect on deferred tax assets and liabilities
          of changes in tax rates is recognized in income for the period that
          includes the enactment date.

          Deferred tax assets are reduced through the recognition of a valuation
          allowance, as appropriate, if, based on the weight of available
          evidence, it is more likely than not that the deferred tax asset will
          not be realized.

          From 2004 on, after the spun-off, the company's management believes,
          based on projections of future taxable income, that it is more likely
          than not that the deferred income tax assets will be realized, for
          which a valuation allowance of R$211 in 2003 was established.

     (g)  Assets and liabilities denominated in foreign currencies or subject to
          monetary restatement - Assets and liabilities denominated in foreign
          currencies are adjusted based on the exchange rate reported by the
          Central Bank of Brazil at each balance sheet date. Those denominated
          in Brazilian reais, and contractually or legally subject to
          indexation, are restated at the balance sheet dates by using the
          related index. Exchange gains and losses and monetary variation gains
          and losses are recorded in the income statement.

     (h)  Revenues and expenses - Revenues from franchise fees are generally
          based on a percentage of franchisee rental revenue and are recognized
          as earned on a monthly basis. Initial franchise fees are recognized
          upon substantial completion of all material services and conditions of
          the franchise sale, which coincides with the date of sale and
          commencement of operations by the franchisee. Expenses include the
          provision of sales and marketing, reservations, information systems
          and other services to franchisees. Expenses are recorded as incurred.

     (i)  Advertising costs - Advertising costs are expensed when incurred. No
          advertising costs have been deferred at the balance sheet dates
          herein. The Company has not incurred advertising costs in the three
          years ended December 31, 2003.

     (j)  Use of estimates - The preparation of consolidated financial
          statements in accordance with accounting principles generally accepted
          in the United States of America requires that the Company's management
          make estimates and use assumptions that affect the reported amounts of
          assets, liabilities and disclosures of contingent assets and
          liabilities as of the dates of the consolidated financial statements
          and the reported amounts of revenues, costs and expenses during the
          reporting periods. Significant estimates are used when accounting for
          allowance for doubtful accounts, income taxes, including recognition
          of valuation allowances, contingencies and goodwill, among others.
          Although these estimates are based on management's knowledge of
          current events and actions that may be undertaken in the future,
          actual results may differ from the estimates included in these
          consolidated financial statements.

     (k)  Interest on capital - Interest paid to shareholders, calculated in
          accordance with Law No. 9.249/95, is recorded in the Company's
          books in the income statement under financial expenses, as determined
          by tax legislation. For presentation in the consolidated financial
          statements, interest paid on capital is presented as a charge to
          retained earnings.

     (l)  Constant currency presentation - In addition to the accounting
          practices described above, the following practices were adopted in the
          preparation of constant currency consolidated


                                      F-66
<PAGE>


          financial statements:

          i.   Index - Through December 31, 1995, the consolidated financial
               statements were price-level adjusted based on the variation of
               UFIR (Inflation index for tax purposes). From January 1, 1996
               through June 30, 1997, the consolidated financial statements were
               price-level adjusted based on the variation of the IGP-M (General
               Price Index of the Market).

          ii.  Nonmonetary assets and liabilities - Office equipment,
               shareholders' equity and other nonmonetary assets and liabilities
               accounts were restated from the date the original transactions
               occurred to June 30, 1997. Income tax and social contribution
               effects were accrued in respect of the increase in shareholders'
               equity due to the recognition of the effects of inflation.


4.   CASH AND CASH EQUIVALENTS

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

          Cash                                157           352           122
          Cash equivalents                  1,798           222            77
                                           ------        ------        ------
                                            1,955           574           199
                                           ======        ======        ======

     As of December 31, 2002 and 2003, all cash and cash equivalents are
     denominated in Brazilian reais. The cash equivalents are highly liquid
     investments that are readily convertible to known amounts of cash without
     any penalty or loss of market rate interest. All of these investments are
     remunerated based on the Interbank Deposit Certificate (CDI).


5.   ACCOUNTS RECEIVABLE, NET

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

     Royalties and advertising fees           979         1,097           380
     Initial franchise fees                   406           420           145
                                           ------        ------        ------
                                            1,385         1,517           525
     Allowance for doubtful accounts          (73)          (83)          (29)
                                           ------        ------        ------
                                            1,312         1,434           496
     Noncurrent assets                       --            (107)          (37)
                                           ------        ------        ------
     Current assets                         1,312         1,327           459
                                           ======        ======        ======


                                      F-67
<PAGE>


6.   RECOVERABLE TAXES

                                                        December 31,
                                                --------------------------
                                                 2002      2003      2003
                                                ------    ------    ------
                                                  R$        R$        US$
                                                ------    ------    ------

     INSS (social security contributions)          --        259        90
     Income tax withheld on cash investments        43        81        28
     Argentina:
         Income tax                                 47       133        46
         Other                                      25        30        11
                                                ------    ------    ------
                                                   115       503       175
     Noncurrent assets                             (72)     (163)      (57)
                                                ------    ------    ------
     Current assets                                 43       340       118
                                                ======    ======    ======

     On February 13, 2003, the Company obtained a favorable judicial decision in
     a claim related to INSS (social security contributions) litigation, which
     assured additional tax assets in the amount of R$302. The amount can be
     offset within the legal limits established in the Law. The Company has
     already offset R$43 through 2003.

7.   ESCROW DEPOSITS

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

     PIS (tax on revenues)                     51            51            18
     PIS/COFINS (tax on other revenues)        39             7             2
     SESC/SENAC                                78            94            33
     SAT                                       39            39            13
     Other                                     20            47            16
                                           ------        ------        ------
                                              227           238            82
                                           ======        ======        ======

     These deposits are primarily made in connection with pending litigation.
     Related reserves for contingencies have been recognized (Note 11), where
     applicable.


8.   OFFICE EQUIPMENT, NET

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

     Computer equipment and software          140           180            62
     Furniture and fixtures                   104           171            59
     Other                                     17            22             8
                                           ------        ------        ------
                                              261           373           129
     Accumulated depreciation and
       amortization                         (168)         (275)          (95)
                                           ------        ------        ------
                                               93            98            34
                                           ======        ======        ======


                                      F-68
<PAGE>


9.   PAYROLL AND RELATED CHARGES

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

     Management compensation                  374           421           146
     Accrued vacation                          37            49            17
     Reserve for employees' bonuses            77           120            42
     INSS (social security contributions)      23            27             9
     Other                                     24            28             9
                                           ------        ------        ------
                                              535           645           223
                                           ======        ======        ======


     The Company pays bi-annual bonuses to employees based on profit,
     considering position and performance.


10.  CEPIN (Assets and Liabilities)

     The CEPIN fund represents amounts collected from the franchisees at a rate
     up to 2.5% of monthly gross revenues, pursuant to the respective business
     franchise contracts. This amount is used for general publicity,
     advertising, and promotions that benefit the Localiza car rental system. In
     2002, the CEPIN funds were used for on-going initiatives and to finance the
     development of a new operational system for franchisees. The costs of this
     project exceeded the available CEPIN funds and consequently, costs,
     amounting to R$54 were paid by Franchising. This amount was in 2002
     recorded as other current assets and it was reimbursed through CEPIN
     collections in 2003. As of December 31, 2003 the CEPIN balance amounts to
     R$403, and it is recorded as a liability. The CEPIN transactions do not
     effect the Company's statement of operations.


11.  RESERVE FOR CONTINGENCIES

     (a) Reserves

                                                      December 31,
                                           ----------------------------------
                                            2002          2003          2003
                                           ------        ------        ------
                                             R$            R$            US$
                                           ------        ------        ------

     PIS (tax on revenues)                     51            51            18
     PIS/COFINS (taxes on other revenues)      39             7             2
     Fiscal                                   108           128            44
     SESC/SENAC                               270           328           114
     SAT                                       39            39            13
     Civil litigation                         222           253            88
     Other                                      9            43            15
                                           ------        ------        ------
                                              738           849           294
                                           ======        ======        ======


                                      F-69
<PAGE>


     The Company and its subsidiary are claimants in several lawsuits and
     defendants in several others. It has recognized the above reserves
     considering the opinion of its external legal and tax counsel which
     consider that the likelihood of an unfavorable outcome related to these
     cases is probable.

     o    PIS (tax on revenues) - The Company has pending litigation contesting
          this tax. As of December 31, 2002 and 2003 the amount of the provision
          is R$51, entirely deposited in an escrow account.

          In December 2002, Franchising petitioned for the conversion of the
          escrow deposit, which assured suspension of the payments to the
          Federal Government, although it maintained the lawsuit. This
          conversion to the Government has not been granted in court.

     o    PIS/COFINS (taxes on other revenues) - The Company has pending
          litigations contesting these taxes in the total amount of R$7 (R$39 in
          2002), entirely deposited in an escrow account.

          In December 2002, Franchising petitioned for the conversion of the
          escrow deposit, which assured suspension of the payments to the
          Federal Government, although it maintained the lawsuit and resumed the
          monthly payments. The COFINS conversion to the Government has been
          granted in court. However, the PIS conversion has not been granted
          yet.

     o    Fiscal - As a result of tax inspections in prior years, the Company
          was assessed by the tax authorities, mainly due to the allegation of
          authorities that certain expenses were inappropriately treated as
          deductible and were not considered necessary to Company's operation
          for tax purposes. The settlement of this contingency was guaranteed by
          a bank guarantee in the amount of R$931.

          The Company based its defense on prior decisions of the Supreme Court
          and legislation in force.

          In September 2002, the Company took advantage of a tax amnesty
          program, pursuant to Executive Order No. 66/02, and settled this
          liability, corresponding to R$1,039, paying R$585 and reversing the
          provision of R$287. As of December 31, 2003, the total amount under
          dispute is R$2,908, and a reserve of R$128 (R$108 in 2002) is
          recorded.

     o    SESC/SENAC - The Company has pending litigation contesting these
          payroll-related taxes. These reserves amount to R$328 as of December
          31, 2003 (R$270 in 2002), of which R$94 (R$78 in 2002) are deposited
          in an escrow account.

     o    SAT - The Company has pending litigation contesting this
          payroll-related tax. This reserve amounts to R$39 as of December 31,
          2003 and 2002, entirely deposited in an escrow account.

          In December 2002, Franchising petitioned for the conversion of the
          escrow deposit, which assured suspension of the payments to the
          Federal Government, although it maintained the lawsuit and resumed the
          monthly payments. This conversion to the Government has not been
          granted in court.


                                      F-70
<PAGE>


     o    Civil litigation - The reserve refers mainly to a lawsuit proposed by
          a former franchisee against the Company claiming the right to be
          reimbursed for losses incurred in the ordinary course of business.
          Management, based on the opinion of its external legal counsel,
          believes that the recorded accrual of R$253 in 2003 (R$222 in 2002),
          is sufficient to cover probable losses.

          Accruals for the aforementioned contingencies are determined based on
          an analysis of the pending claims, as well as on the potential risks
          involved.

     (b)  Other contingencies

     o    Bodily injury and death claim - The Company was party to a claim
          related to bodily injury and death, caused by franchisees' vehicle. In
          2001, the Company settled with the claimants, for the amount of R$400.
          As part of the related franchise agreement, the Company was reimbursed
          by the franchisee in monthly installments until February 2003, when
          the franchisee agreement was cancelled and the residual amount was
          liquidated through the settlement of payable and receivable amounts
          with the franchisee.

          In addition to the above mentioned reserves, the Company is a
          defendant in other tax lawsuits, considered a remote loss by legal
          counsel. Such lawsuits have their settlements guaranteed by bank
          guarantees, as per judicial procedures request, in the amount of
          R$2,018.

          The Company's management, based on the opinion of its external legal
          and tax counsel, does not expect that the resolution of these matters
          will have a material adverse effect on the Company's financial
          position or results of operations and believes that no additional
          reserves for contingencies are required to be recorded.


12.  INCOME TAX AND SOCIAL CONTRIBUTION

     (a)  Deferred income tax and social contribution

     Temporary differences that give rise to deferred tax assets are as follows:

                                                           December 31,
                                                  -----------------------------
                                                   2002       2003        2003
                                                  ------     ------      ------
                                                    R$         R$          US$
                                                  ------     ------      ------
          Deferred tax assets:
              Allowance for doubtful accounts          7          7           2
              Reserve for contingencies              202        211          73
              Other                                    2         61          21
                                                  ------     ------      ------
                                                     211        279          96
              Valuation allowance                   --         (211)        (73)
                                                  ------     ------      ------
                                                     211         68          23
              Current portion                         (7)        (7)         (2)
                                                  ------     ------      ------
              Long-term portion                      204         61          21
                                                  ======     ======      ======


                                      F-71
<PAGE>


     The current portion of deferred tax assets is recorded as other current
     assets as of December 31, 2002 and 2003. For December 31, 2003, the total
     amount of deferred tax assets refers to MFA. From 2004 on, after the
     spun-off, the Company's management believes, based on projections of future
     taxable income, that the realization of the deferred taxes previously
     recorded by the Company are not more likely than not to be realized and a
     valuation allowance has been recorded in the amount of R$211.

     (b)  Income tax and social contribution

     Income tax and social contribution at nominal rates are reconciled to the
     amount reported as income tax expense in the consolidated financial
     statements, as follows:

<TABLE>
                                                    Year ended December 31,
                                           ------------------------------------------
                                            2001        2002        2003        2003
                                           ------      ------      ------      ------
                                             R$          R$          R$          US$
                                           ------      ------      ------      ------
<S>                                        <C>         <C>         <C>         <C>

     Income before taxes                      371       2,201       2,336         809
     Nominal rate                              34%         34%         34%         34%
                                           ------      ------      ------      ------
     Income taxes at nominal rate            (126)       (748)       (794)       (275)
         Equity in subsidiary                 (67)         15         (29)        (10)
         Goodwill amortization               (136)       --          --          --
         Interest on capital                   36        --          --          --
         Non deductible reserve for
            contingencies                     (97)          4        --          --
         Valuation reserve                   --          --          (211)        (73)
         Other                                 20          44         105          36
                                           ------      ------      ------      ------
     Income tax-profit and loss              (370)       (685)       (929)       (322)
                                           ======      ======      ======      ======
</TABLE>

     The tax rates for the periods are:

     Income tax                                                              15%
     Additional income tax (for the taxable income exceeding R$240
       per year)                                                             10%
     Social contribution                                                      9%


13.  SHAREHOLDERS' EQUITY

     (a)  Capital stock

     As of December 31, 2002 capital stock as per the statutory records was
     represented by R$1,116 corresponding to 1,115,540 issued outstanding
     quotas, with par value of R$1.00 each. The quotas could not be sold,
     pledged or transferred to third parties without the approval of all
     quotaholders.

     As of December 31, 2003, capital stock as per the statutory records was
     represented by


                                      F-72
<PAGE>


     R$116 corresponding to 116,254 issued outstanding nominative common shares,
     without par value.

     The number of outstanding shares on December 31, 2003 is as follows:

                                           Shares             %
                                          ---------       --------
     Localiza Rent a Car S.A.               107,535           92.5%
     Aristides Luciano Azevedo Newton         8,719            7.5%
                                          ---------       --------
                                            116,254          100.0%
                                          =========       ========

     (b)  Dividends

     In accordance with Brazilian Corporate Law, the Company's bylaws require
     that the Company's shareholders be paid a minimum annual dividend of 25% of
     adjusted net profit. However, upon the vote of 100% of the shareholders
     present at the general shareholders' meeting, such shareholders may declare
     a lower dividend or decide not to declare dividends. In such case, the
     adjusted net profit, which was not distributed for such reason, is recorded
     as a special reserve and, if not absorbed by losses in subsequent fiscal
     years, is paid as soon as the financial situation of the Company permits.

     Brazilian legislation permits dividend payments limited to the accumulated
     earnings in the statutory consolidated financial statements prepared in
     accordance with Brazilian Corporate Law.

     For the years ended December 31, 2001, 2002 and 2003, the Company's net
     income, determined in accordance with Brazilian Corporate Law was R$148,
     R$1,516 and R$1,407 respectively, and the accumulated earnings available
     for distribution of profits were R$50, R$1,536 and R$1,508 respectively.
     The appropriation of the Company's net income was determined in
     quotaholders' meetings in 2001 and 2002, and by an shareholders' meeting in
     2003, resulting in a decision to pay distribution of profits of R$30 in
     2001, declared during the year, R$1,435 in 2002, of which R$853 was paid in
     2003. For 2003, dividends of R$1,400 were declared and paid.

     (c)  Interest on capital

     The interest on capital paid in 2001, amounting to R$106, was approved by
     the quotaholders. Interest on capital, net of income tax withheld,
     amounting to R$90, was recorded as payable to related parties. Such amount
     was paid in 2002. The interest on capital was paid pursuant to Article
     No. 9 of Law No. 9,249, of December 26, 1995, and amendments
     introduced by Article No. 78 of Law No. 9,430, of December 27,
     1996. Interest was calculated based on quotaholders' equity, is limited to
     the variation of the Long-Term Interest Rate ("TJLP"), and is deductible
     for income tax purposes.


                                      F-73
<PAGE>


14.  SELLING, GENERAL, ADMINISTRATIVE AND OTHER EXPENSES

<TABLE>
                                                                 Year ended December 31,
                                                        ------------------------------------------
                                                         2001        2002        2003        2003
                                                        ------      ------      ------      ------
                                                          R$          R$          R$          US$
                                                        ------      ------      ------      ------
<S>                                                     <C>         <C>         <C>         <C>

     Payroll and related charges                           (16)       --           (25)         (9)
     External services                                    (120)       (118)        (73)        (25)
     Provision for bad debts                               (37)          4         (10)         (3)
     Write-off of uncollectible receivables                (92)       (100)         (7)         (2)
     Tax contingencies                                     (92)         (2)        (16)         (6)
     Bank fees                                             (21)        (15)        (12)         (4)
     Credit card fees                                      (32)         (2)         (6)         (2)
     Other                                                  (8)        (13)        (26)        (10)
                                                        ------      ------      ------      ------
                                                          (418)       (246)       (175)        (61)
                                                        ======      ======      ======      ======
</TABLE>

15.  FINANCIAL (EXPENSES) INCOME, NET

<TABLE>
                                                                      Year ended December 31,
                                                             ------------------------------------------
                                                              2001        2002        2003        2003
                                                             ------      ------      ------      ------
                                                               R$          R$          R$          US$
                                                             ------      ------      ------      ------
<S>                                                          <C>         <C>         <C>         <C>

     Interest income                                            185         314         318         110
     Interest expense                                           (30)        (37)       (170)        (59)
     Taxes on financial revenues                                (11)        (13)        (14)         (5)
     Net monetary variation and exchange gains
         (losses)                                              (177)         24          (3)         (1)
     Other                                                      (39)        (65)        (52)        (18)
                                                             ------      ------      ------      ------
                                                                (72)        223          79          27
                                                             ======      ======      ======      ======
</TABLE>

16.  TRANSACTIONS WITH RELATED PARTIES:

     The main balances and transactions with related parties are as follows:

<TABLE>
                                                                      Year ended December 31,
                                                             ------------------------------------------
                                                              2001        2002        2003        2003
                                                             ------      ------      ------      ------
                                                               R$          R$          R$          US$
                                                             ------      ------      ------      ------
<S>                                                          <C>         <C>         <C>         <C>
     Accounts receivable - Current assets:
         Localiza Rent a Car S.A.                               167        --          --          --
                                                             ======      ======      ======      ======

     Accounts receivable - Noncurrent assets:
         Minority shareholder                                    93          94        --          --
                                                             ======      ======      ======      ======

     Accounts payable and dividends - current
         liabilities:
         Minority shareholder                                     6          64        --          --
         Localiza Rent a Car S.A.                               246         999          52          18
         Total Fleet S.A.                                         3        --          --          --
                                                             ------      ------      ------      ------
</TABLE>


                                      F-74
<PAGE>


<TABLE>
                                                                      Year ended December 31,
                                                             ------------------------------------------
                                                              2001        2002        2003        2003
                                                             ------      ------      ------      ------
                                                               R$          R$          R$          US$
                                                             ------      ------      ------      ------
<S>                                                          <C>         <C>         <C>         <C>
                                                                255       1,063          52          18
                                                             ======      ======      ======      ======

     Direct costs:
         Total Fleet S.A.                                      --          --            37          13
                                                             ======      ======      ======      ======

     Other revenues:
         Total Fleet S.A.                                        49          38        --          --
                                                             ======      ======      ======      ======

     Reimbursement of direct operating costs:
         Localiza Rent a Car S.A.                              (494)       (526)       (650)       (225)
                                                             ======      ======      ======      ======

     Financial interest expenses:
         Localiza Rent a Car S.A.                                 3        --          --          --
                                                             ======      ======      ======      ======
</TABLE>


     Total Fleet S.A. is a wholly-owned subsidiary of Localiza and is engaged in
     the fleet management business.

     Management believes that such transactions were completed at arm's length
     and consistent with market conditions.


17.  FINANCIAL INSTRUMENTS

     The Company's financial instruments are recorded in balance sheet accounts,
     as of December 31, 2002 and 2003, at amounts that approximate their fair
     values on those dates. The management of these instruments is made through
     operational strategies, seeking liquidity, returns and safety. The control
     policy consists of continually checking contracted rates versus the market.
     The Company did not have derivatives during all periods presented.


18.  RECENTLY ISSUED ACCOUNTING STANDARDS

     During June 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards No. 141 (SFAS No. 141),
     "Business Combinations". SFAS No. 141 addresses financial accounting and
     reporting for business combinations. All business combinations in the scope
     of SFAS No. 141 are to be accounted for using one method, the purchase
     method. In addition, SFAS No. 141 requires that intangible assets be
     recognized as assets apart from goodwill if they meet two criteria: the
     contractual-legal criterion or the separability criterion. To assist in
     identifying acquired intangible assets, SFAS No. 141 also provides a list
     of intangible assets that meet either of those criteria. In addition to the
     disclosure requirements prescribed in Opinion 16, SFAS No. 141 requires
     disclosure of the primary reasons for a business combination and the
     allocation of the purchase price paid to the assets acquired and
     liabilities assumed by major balance sheet caption. SFAS No. 141 also
     requires that when the amounts of goodwill and intangible assets


                                      F-75
<PAGE>


     acquired are significant to the purchase price paid, disclosure of other
     information about those assets is required, such as the amount of goodwill
     by reportable segment and the amount of the purchase price assigned to each
     major intangible asset class. The provisions of SFAS No. 141 apply to all
     business combinations initiated after June 30, 2001. SFAS No. 141 also
     applies to all business combinations accounted for using the purchase
     method for which the date of acquisition is July 1, 2001, or later. The
     adoption of SFAS No. 141 on January 1, 2002 did not have any impact on the
     Company's financial statements.

     During June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
     Assets". SFAS No. 142 addresses financial accounting and reporting for
     acquired goodwill and other intangible assets. SFAS No. 142 amends SFAS No.
     121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived
     Assets to Be Disposed Of", to exclude from its scope goodwill and
     intangible assets that are not amortized. SFAS No. 142 addresses how
     intangible assets that are acquired individually or with a group of other
     assets (but not those acquired in a business combination) should be
     accounted for in financial statements upon their acquisition. This
     Statement also addresses how goodwill and other intangible assets should be
     accounted for after they have been initially recognized in the financial
     statements. The provisions of SFAS No. 142 are required to be applied
     starting with fiscal years beginning after December 15, 2001. The adoption
     of SFAS No.142 on January 1, 2002 did not have any impact on the Company's
     financial statements.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
     Retirement Obligations". SFAS No. 143 requires that the fair value of a
     liability for an asset retirement obligation be recognized in the period in
     which it is incurred if a reasonable estimate of fair value can be made.
     Under SFAS No. 143, the liability for an asset retirement obligation is
     discounted and accretion expense is recognized using the credit-adjusted
     risk-free interest rate in effect when the liability was initially
     recognized. In addition, disclosure requirements contained in SFAS No. 143
     will provide more information about asset retirement obligations. SFAS No.
     143 is effective for financial statements issued for fiscal years beginning
     after June 15, 2002 with earlier application encouraged. Since the Company
     does have any legal asset retirement obligations pursuant to the respective
     concession contracts, the adoption of this standard as of January 1, 2003
     did not have any impact on the Company's financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets". The new standard will be
     effective for financial statements issued for fiscal years beginning after
     December 15, 2001, with early application encouraged. SFAS No. 144
     supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of", although it retains
     the fundamental provisions of SFAS No. 121. SFAS No. 144 also
     expands the scope of discontinued operations presentation to a component of
     an entity and eliminates the exception to consolidation for a temporarily
     controlled subsidiary. The adoption of SFAS No. 144 had no impact on
     the Company's financial position, results of operations or cash flows.

     In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
     Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses
     from Extinguishment of Debt," which required that all gains and losses from
     extinguishment of debt to be aggregated and classified as an extraordinary
     item if material. SFAS No. 145 requires that gains and losses from


                                      F-76
<PAGE>


     extinguishment of debt be classified as extraordinary only if they meet
     criteria in APB 30, thus distinguishing transactions that are part of
     recurring operations from those that are unusual or infrequent, or that
     meet the criteria for classification as an extraordinary item. SFAS No. 145
     amends SFAS No. 13, "Accounting for Leases", to require that lease
     modifications that have economic effects similar to sale-leaseback
     transactions be accounted for in the same manner as sale-leaseback
     transactions. In addition, SFAS No. 145 rescinds SFAS No. 44, "Accounting
     for Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments
     of Debt Made to Satisfy Sinking-Fund Requirements," which are not currently
     applicable to the Company. The provisions of SFAS No. 145 as they relate to
     the rescission of SFAS No. 4 shall be applied in fiscal year 2003. Certain
     provisions related to SFAS No. 13 are effective for transactions occurring
     after May 15, 2002. The adoption of this statement did not have an impact
     on the Company's financial statements.

     In June 2002, FASB issued SFAS No. 146 "Accounting for costs associated
     with Exit or Disposal Activities". This Statement addresses financial
     accounting and reporting for costs associated with exit or disposal
     activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
     "Liability Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity (including Certain Costs Incurred in a
     Restructuring)." The principal difference between this Statement and EITF
     94-3 relates to its requirements for recognition of a liability for a cost
     associated with an exit or disposal activity. This Statement requires that
     a liability for a cost associated with an exit or disposal activity be
     recognized when the liability is incurred. Under EITF 94-3, a liability for
     an exit cost was recognized at the date of an entity's commitment to an
     exit plan. A fundamental conclusion reached by the Board in this Statement
     is that an entity's commitment to a plan, by itself, does not create a
     present obligation to others that meets the definition of a liability. This
     Statement also establishes that fair value is the objective for initial
     measurement of the liability. This Statement improves financial reporting
     by requiring that a liability for a cost associated with an exit or
     disposal activity be recognized and measured initially at fair value only
     when the liability is incurred. The accounting for similar events and
     circumstances will be the same, thereby improving the comparability and
     representational faithfulness of reported financial information. The
     provisions of this Statement are effective for exit or disposal activities
     that are initiated after December 31, 2002, with early application
     encouraged. During 2003, the Company did not have any exit or disposal
     activities and consequently, this statement did not have an impact on the
     Company's financial statements during the year ended December 31, 2003.

     In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
     Instruments with Characteristics of both Liabilities and Equity". SFAS No.
     150 modifies the accounting for certain financial instruments that, under
     previous guidance, issuers could account for as equity. The Statement
     requires that those instruments be classified as liabilities in statements
     of financial position. SFAS No. 150 affects an issuer's accounting for
     three types of freestanding financial instruments, namely:

          1.   Mandatory redeemable shares, which the issuing company is
               obligated to buy back in exchange for cash or other assets.

          2.   Instruments, other than outstanding shares, that do or may
               require the issuer to buy back some of its shares in exchange for
               cash or other assets. These instruments include put options and
               forward purchase contracts.


                                      F-77
<PAGE>


          3.   Obligations that can be settled with shares, the monetary value
               of which is fixed, tied solely or predominantly to a variable
               such as a market index, or varies inversely with the value of the
               issuers' shares.

     SFAS No. 150 does not apply to features embedded in financial instruments
     that are not derivatives in their entirety. In addition to its requirements
     for the classification and measurement of financial instruments within its
     scope, SFAS No. 150 also requires disclosures about alternative ways of
     settling those instruments and the capital structure of entities, all of
     whose shares are mandatorily redeemable. SFAS No. 150 is effective for
     financial instruments entered into or modified after May 31, 2003, and
     otherwise is effective at the beginning of the first interim period
     beginning after June 15, 2003. It is to be implemented by reporting the
     cumulative effect of a change in an accounting principle for financial
     instruments created before the issuance date of the Statement and still
     existing at the beginning of the interim period of adoption. The adoption
     of this statement did not have an impact on the Company's financial
     statements for the year ended December 31, 2003.

     In November 2002, the FASB issued Interpretation 45, "Guarantor's
     Accounting and Disclosure Requirements for Guarantees, Including Indirect
     Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain
     disclosures to be made by a guarantor in its interim and annual financial
     statements about its obligations under certain guarantees that it has
     issued. It also requires a guarantor to recognize, at the inception of a
     guarantee, a liability for the fair value of the obligation undertaken in
     issuing the guarantee. The disclosure requirements of FIN 45 are effective
     for interim and annual periods ending after December 15, 2002. The initial
     recognition and initial measurement requirements of FIN 45 are effective
     prospectively for guarantees issued or modified after December 31, 2002.
     The adoption of this statement did not have an impact on the Company's
     financial statements for the year ended December 31, 2003.

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
     Interpretation 46 "Consolidation of Variable Interest Entities, an
     interpretation of ARB 51" which provided a new framework for identifying
     variable interest entities (VIEs) and determining when a company should
     include the assets, liabilities, non-controlling interests and results of
     activities of a VIE in consolidated financial statement. FIN 46 was
     effective immediately for VIEs created after January 31, 2003 and to VIES
     in which an enterprise obtained a variable interest after that date. For
     variable interests in VIES created before February 1, 2003, FIN 46 applied
     to public enterprises no later than the beginning of the first interim or
     annual period beginning after June 15, 2003.

     On October 9, 2003 the FASB decided to defer the implementation date of FIN
     46 to the fourth quarter instead of the third quarter. Pursuant to this
     deferral, public companies in the United States of America had to complete
     their evaluations of variable interest entities that existed prior to
     February 1, 2003, and the consolidation of those for which they are the
     primary beneficiary for financial statements issued for the first period
     ending after December 15, 2003. For calendar year companies, consolidation
     of previously existing variable interest entities was required in their
     December 31, 2003 financial statements. This deferral did not affect the
     implementation date for many foreign private issuers, which continued to be
     the beginning of the first annual period ending after December 15, 2003.


                                      F-78
<PAGE>


     In December 2003 FIN 46 was substantially revised and a new interpretation
     FIN 46 (revised) was issued. The key differences between FIN 46 (revised)
     and its predecessor FIN 46 include:

          1.   FIN 46R now scopes out many - but not all - businesses, as that
               term is defined in the Interpretation. A business - assuming it
               is scoped out of FIN 46R - should be consolidated with its
               accounting parent (if it has one) only when required by
               longstanding, conventional consolidation guidance, most notably
               Accounting Research Bulletin No. 51, Consolidated Financial
               Statements (ARB 51). Under FIN 46, any business potentially could
               have been a VIE (and, if so, subject to the Interpretation's
               unique consolidation requirements) depending on the design of the
               business' capital structure and other factors. Note that an
               entity whose primary activity is asset-backed financing or who
               acts as a single-lessee leasing entity cannot qualify for the
               scope exemption in FIN 46R, even if it would otherwise be a
               business. If such an entity is a VIE, it is covered by FIN 46R's
               consolidation requirements.

          2.   FASB partially delayed FIN 46's effective date (for most public
               companies until no later than the end of the first reporting
               period ending after March 15, 2004. The delay notwithstanding,
               public companies must apply either FIN 46 or FIN 46R to
               special-purpose entities (SPEs) no later than the end of the
               first reporting period ending after December 15, 2003. For many
               foreign private issuers the effective date continues to be the
               beginning of the first annual period ending after December 15,
               2003. For SPEs created by foreign private issuers after February
               1, 2003, however, the effective date is no later than the end of
               the first reporting period ending after December 15, 2003.

     Based on an initial assessment of the provisions and requirements of FIN
     46R, the Company believes that the implementation of this statement will
     not result in any impact to the Company's consolidated financial
     statements.


19.  VALUATION AND QUALIFYING ACCOUNTS

     Following are disclosures regarding the Company's valuation and qualifying
     accounts:

<TABLE>
                                                                      Year ended December 31,
                                                             ------------------------------------------
                  Description                                 2001        2002        2003        2003
     ----------------------------------------------          ------      ------      ------      ------
                                                               R$          R$          R$          US$
                                                             ------      ------      ------      ------
<S>                                                          <C>         <C>         <C>         <C>
     Reserve for contingencies:
     --------------------------

     Balances as of beginning of the year                       938       1,251         738         255
     Charges to costs and expenses                              706          72         143          50
     Deductions                                                (393)       (585)        (32)        (11)
                                                             ------      ------      ------      ------
     Balances as of end of the year                           1,251         738         849         294
                                                             ======      ======      ======      ======

     Allowance for doubtful accounts:
     --------------------------------

     Balances as of beginning of the year                        40          77          73          26
     Charges to expenses, net of reversions                      37          (4)         10           3
                                                             ------      ------      ------      ------
     Balances as of end of the year                              77          73          83          29
                                                             ======      ======      ======      ======
</TABLE>


                                      F-79
<PAGE>


LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.
Financial Statements Together with Report
of Independent Registered Public Accounting Firm



Stated in thousands of Argentine pesos
December 31, 2002 and 2003
and for the three years for the period ended December 31, 2003


<PAGE>


            Report of Independent Registered Public Accounting Firm

To the Shareholders of
Localiza Master Franchisee Argentina S.A.:

We have audited the balance sheets of Localiza Master Franchisee Argentina S.A.
(an Argentine Corporation and a subsidiary of Localiza Franchising S.A.) as of
December 31, 2003 and 2002, and the related statements of income, changes in
shareholders' equity and cash flows for the years then ended (all expressed in
thousands of Argentine pesos). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
such financial statements based on our audits. The financial statements of the
Company as of December 31, 2001 and for the year in the period ended December
31, 2001, were audited by other auditors whose report, dated March 11, 2002
expressed an unqualified opinion on those financial statements.

We conducted our audits in accordance with generally accepted auditing
standards in Argentina and in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the financial statements expressed in thousands of Argentine
pesos referred to in the first paragraph present fairly, in all material
respects, the financial position of Localiza Master Franchisee Argentina S.A.
as of December 31, 2003 and 2002, and the results of its operations and cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

Our audits also comprehended the translation of the Argentine peso amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2 (c). The translation of the
financial statement amounts into U.S. dollars have been made solely for the
convenience of readers in the United States of America. Accordingly, it should
not be construed that the financial statements in U.S. dollars present the
financial position, results of operations, changes in shareholders' equity and
cash flows in accordance with accounting principles generally accepted in the
United States of America.

Buenos Aires, Argentina
March 12, 2004

/s/ Deloitte Touche Tohmatsu


<PAGE>


                 (This is a copy of a previously issued report.
                       This report has not been reissued).


REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS

To the Shareholders of
LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.:

     We have audited the balance sheets of LOCALIZA MASTER FRANCHISEE ARGENTINA
S.A. (an Argentine Corporation and a subsidiary of Localiza System Ltda.) as of
December 31, 2001, and 2000, and the related statements of income, changes in
shareholders' equity and cash flows for the years ended in December 31, 2001 and
2000 and for the one-month period ended December 31, 1999, stated in thousands
of Argentine pesos. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on such
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     As described in note 12 to the accompanying financial statements, in the
last few months, a deep change has been implemented in the economic model of the
country as well as in the Convertibility Law that was in place since March 1991
(whereby the Argentine peso was pegged at parity with the US dollar). The main
consequences of the set of measures adopted by the Argentine Federal Government,
which are detailed in the above mentioned note, have been (a) the devaluation of
the Argentine peso with respect to the US dollar and de-dollarization of certain
assets and liabilities in foreign currency held in the country; (b) the
implementation of restrictions on the withdrawal of funds deposited with
financial institutions; (c) the restriction on transfers abroad on account of
financial loan service and dividend distributions without prior authorization
from the Central Bank; and (d) the increase in domestic prices. The future
development of the economic crisis may require further measures from the
Argentine Federal Government. The accompanying financial statements should be
read taking into account the issues mentioned above.

     In our opinion the financial statements referred to in paragraph 1. present
fairly, in all material respects, the financial position of LOCALIZA MASTER
FRANCHISEE ARGENTINA S.A. as of December 31, 2001, and 2000, and the results of
its operations and its cash flows for the years ended December 31, 2001 and 2000
and for the one-month period ended December 31, 1999, in conformity with
generally accepted accounting principles in the United States of America.

     Additionally, in our opinion, the figures of the balance sheet as of
December 31, 2001 and the statements of income and cash flows for the year then
ended, converted to US dollars and included in the column "2001 US$", have been
computed in accordance with the methodology described in Note 2. (d).

Buenos Aires, Argentina,                  PISTRELLI, DIAZ Y ASOCIADOS
  March 11, 2002
                              /s/ Karen Grigorian

                                  KAREN GRIGORIAN
                                  Partner


<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                                 BALANCE SHEETS

                           DECEMBER 31, 2002 AND 2003

        (in thousands of Argentine pesos - ARP - and U.S. dollars - US$)

                                                          December 31,
                                                      ----------------------
                                                       2002    2003    2003
                                                      ------  ------  ------
                                                       ARP     ARP     US$
                                                      ------  ------  ------
Current Assets:

Cash                                                      4      38      13
Accounts receivable                                     273     337     115
Other                                                    42     145      49
                                                      -----   -----   -----
       Total current assets                             319     520     177
                                                      -----   -----   -----

Noncurrent Assets:

Accounts receivable                                              15       5
Other                                                    75     170      58
Deferred income tax                                              62      21
Office equipment, net                                    13       7       3
                                                      -----   -----   -----
       Total non-current assets                          88     254      87
                                                      -----   -----   -----
       Total assets                                     407     774     264
                                                      =====   =====   =====

Current Liabilities:

Accounts payable                                         77     134      46
Accrued payroll and payroll taxes                        17      25       8
Accrued taxes, other than on income                       7       8       3
Due to related party                                    152     215      73
Other                                                    42     172      58
                                                      -----   -----   -----
       Total current liabilities                        295     554     188
                                                      -----   -----   -----

Noncurrent Liabilities:

Accrued contingencies                                    28      40      14
Other                                                     1        .       .
                                                      -----   -----   -----
       Total non-current liabilities                     29      40      14
                                                      -----   -----   -----

Shareholders' Equity:

Capital stock                                            25      25       9
Additional paid-in capital                              448     448     153
(Accumulated deficit) Retained earnings                (390)   (293)   (100)
                                                      -----   -----   -----
       Total shareholders' equity                        83     180      62
                                                      -----   -----   -----
       Total liabilities and shareholders' equity       407     774     264
                                                      =====   =====   =====


                       See notes to financial statements.

                            LEONARDO FEDERICI GUEDES
                                  Chairman


                                      F-83
<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                              STATEMENTS OF INCOME

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

     (Stated in thousands of Argentine pesos - ARP and U.S. dollars - US$)

<TABLE>
                                                                  Year ended December, 31
                                                       --------------------------------------------
                                                         2001        2002        2003        2003
                                                       --------    --------    --------    --------
                                                         ARP         ARP         ARP         US$
                                                       --------    --------    --------    --------
<S>                                                        <C>         <C>         <C>         <C>
NET REVENUES:
Royalties and advertising fees                            668         772         762         260
Initial franchise fees                                     72          94         220          75
                                                         ----        ----        ----        ----

Total revenues                                            740         866         982         335

COSTS AND EXPENSES:
Operating                                                (706)       (588)       (779)       (266)
Selling, general and administrative                      (143)       (222)       (158)        (54)
Depreciation                                              (15)        (14)        (10)         (3)
                                                         ----        ----        ----        ----
Total costs and expenses                                 (864)       (824)       (947)       (323)
                                                         ----        ----        ----        ----
Operating income (loss)                                  (124)         42          35          12

FINANCIAL EXPENSES, NET                                   (10)          9           -           -
                                                         ----        ----        ----        ----
Net income (loss) for the year before income tax         (134)         51          35          12
Income tax benefit                                          -           -          62          21
                                                         ----        ----        ----        ----
Net income (loss) for the year                           (134)         51          97          33
                                                         ====        ====        ====        ====
</TABLE>


                       See notes to financial statements.

                            LEONARDO FEDERICI GUEDES
                                    Chairman


                                      F-84
<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

                    (Stated in thousands of Argentine pesos)

<TABLE>
                                                                      (Accumulated
                                           Capital    Additional        deficit)
                                            Stock   paid-in capital  Retained earnings  Total
                                           -------  ---------------  -----------------  -----
<S>                                           <C>            <C>             <C>         <C>
BALANCE AS OF DECEMBER 31, 2000               197          135            (307)          25

Irrevocable capital contribution                -          141               -           141

Net loss for the year                           -            -            (134)         (134)
                                             ----         ----            ----          ----
BALANCE AS OF DECEMBER 31, 2001               197          276            (441)           32

Reduction of capital stock                   (172)         172               -             -

Net income for the year                         -            -              51            51
                                             ----         ----            ----          ----
BALANCE AS OF DECEMBER 31, 2002                25          448            (390)           83


Net income for the year                                                     97            97
                                             ====         ====            ====          ====
BALANCE AS OF DECEMBER 31, 2003                25          448            (293)          180
                                             ====         ====            ====          ====
</TABLE>


                       See notes to financial statements.

                            LEONARDO FEDERICI GUEDES
                                    Chairman


                                      F-85
<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

     (Stated in thousands of Argentine pesos - ARP and U.S. dollars - US$)

<TABLE>
                                                                  Year ended December, 31
                                                       --------------------------------------------
                                                         2001        2002        2003        2003
                                                       --------    --------    --------    --------
                                                         ARP         ARP         ARP         US$
                                                       --------    --------    --------    --------
<S>                                                    <C>         <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) for the year                           (134)         51          97           33

Adjustments to reconcile net income (loss) to
    net cash provided by (used
    in) operating activities:
    Income tax                                                                    (62)         (21)
    Depreciation                                           15          14          10            3
    Provision for contingencies                            17          11          12            4
                                                        -----       -----       -----         ----
                                                         (102)         76          57           19
    Changes in assets and liabilities:
       Accounts receivable                                 (1)        (93)        (79)         (27)
       Other assets                                         7         (64)       (198)         (68)
       Accounts payable                                    30         (28)         57           19
       Accrued payroll and payroll taxes                   (7)         (9)          8            3
       Accrued taxes                                      (36)        (13)          1            -
       Other liabilities                                   (2)         14         129           45
                                                        -----       -----       -----         ----
                                                           (9)       (193)       (144)         (49)

Net cash used in operating activities                    (111)       (117)        (25)          (9)
                                                        =====       =====       =====         ====
</TABLE>


                            LEONARDO FEDERICI GUEDES
                                    Chairman


                                      F-86
<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

     (Stated in thousands of Argentine pesos - ARP and U.S. dollars - US$)

<TABLE>
                                                                  Year ended December, 31
                                                       --------------------------------------------
                                                         2001        2002        2003        2003
                                                       --------    --------    --------    --------
                                                         ARP         ARP         ARP         US$
                                                       --------    --------    --------    --------
<S>                                                    <C>         <C>         <C>         <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to office equipment                              (6)          -          (4)       (1)
Net cash used in investing activities                      (6)          -          (4)       (1)
                                                         ----        ----        ----      ----


CASH FLOWS FROM FINANCING ACTIVITIES:

Transactions with related parties:

   Increase in (repayment of) intercompany debt           (38)        120          63         22
   Irrevocable capital contribution                       141           -           -          -
                                                         ----        ----        ----      ----
Net cash provided by financing activities                 103         120          63         22
                                                         ----        ----        ----      ----

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (14)          3          34         12
                                                         ----        ----        ----      ----

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR             15           1           4          1
                                                         ----        ----        ----      ----

CASH AND CASH EQUIVALENTS AT END OF YEAR
                                                            1           4          38         13
                                                         ====        ====        ====      =====
Supplemental disclosures of cash flow information-

Cash paid during the year for Income taxes                  1           -           -          -
</TABLE>


                       See notes to financial statements.

                            LEONARDO FEDERICI GUEDES
                                    Chairman


                                      F-87
<PAGE>


                   LOCALIZA MASTER FRANCHISEE ARGENTINA S.A.

                       NOTES TO THE FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2002 AND 2003

  (Amounts expressed in thousands of Argentine pesos - ARP and U.S. dollars -
                       US$, unless otherwise indicated)

1.   THE COMPANY AND ITS OPERATIONS:

      Localiza Master Franchisee Argentina S.A. ("the Company") is a
      corporation ("sociedad anonima") organized under the laws of the Republic
      of Argentina and domiciled in the city of Buenos Aires; its main
      shareholder is Localiza Franchising S.A. (Formerly Localiza Franchising
      Ltda.), a company domiciled in Belo Horizonte, Brazil. The Company,
      engaged in the commercial use of licenses and trademarks, started its
      operations during the year 1992.

      The Company grants exclusive rights to its franchisees for defined
      geographic areas pursuant to renewable contracts. Franchisees generally
      pay the Company an initial fixed fee when the contract is signed, plus a
      monthly flat fee consisting of royalties and an advertising fee, based on
      gross revenues generated by the franchisees.

      On August 30, 1999, Localiza Franchising S.A., acquired a 60% interest in
      the Company from EDS Inversora S.A. As a consequence of this transaction
      Localiza Franchising S.A. increased its ownership in the Company to
      99.99%.

      By virtue of the Master Franchise Agreement signed between the Company (as
      "franchisee") and Localiza Franchising S.A. (as "franchisor"), the Company
      must pay Localiza Franchising S.A. 1.5% of the car rental earned by the
      Company's franchisees. However, this payment was waived as from September
      1999. This Master Franchisee Agreement has a 10-year term, starting March
      1994.

2.   BASIS FOR PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS:

     a)   Accounting records

          The Company's accounting records are maintained in Argentine pesos
          (U$S1=$ 2.93 as of December 31, 2003) based on the criteria
          prescribed by the Argentine Corporate Law. These records serve as a
          basis for the distribution of results/dividends.

     b)   Presentation of the financial statements

          These financial statements have been prepared to be filed with the
          Securities and Exchange Commission of the United States of America
          (the "SEC"). They have been prepared in accordance with generally
          accepted accounting principles in the United States of America, which
          differ in certain respects from the accounting principles applied by
          the Company in its financial statements prepared in accordance with
          generally accepted accounting principles in Argentina or for other
          statutory purposes in Argentina.


                                      F-88
<PAGE>


          Shareholders' equity and net income included in these financial
          statements differ from those included in the statutory accounting
          records as a result of adjustments made to reflect the requirements
          of generally accepted accounting principles in the United States of
          America.

     c)   Translation of balances from Argentine pesos to U.S. dollars

          The financial statements are stated in Argentine pesos, the currency
          of the country in which the company is incorporated and operates. The
          translations of Argentine peso amounts into U.S. dollar amounts are
          included solely for the convenience of readers in the United States
          of America and have been made at the rate of Argentine pesos 2.93 to
          $1 U.S., the approximate free rate of exchange at December 31, 2003.
          Accordingly, it should not be construed that the financial statements
          in U.S. dollars present the financial position, results of
          operations, changes in shareholders' equity and cash flows in
          accordance with accounting principles generally accepted in the
          United States of America. Such translations should not be construed
          as representations that the Argentine peso amounts could be converted
          into U.S. dollars at the above or any other rate.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:

     The financial statements expressed in Argentine pesos were prepared in
     conformity with accounting principles generally accepted in the United
     States of America, based on the following accounting policies:

     a)   Allowance for doubtful accounts: Provided in an amount considered
          sufficient to cover eventual losses on accounts receivable,
          considering past experience, the current financial situation of the
          Company's customers and the status of past-due receivables.

     b)   Office equipment: Valued at historical cost, are net of related
          accumulated depreciation, using the straight-line method over the
          estimated useful lives of the related assets.

          Estimated useful lives are as follows:

          Furniture and fixtures                         5 years
          Software and equipment                         3 to 5 years
          Facilities                                     5 years

          The Company's estimated undiscounted future cash flows are
          sufficient to recover the carrying value of fixed assets at period
          end.

     c)   Income and social contribution taxes - The Company calculates income
          taxes at the current rate of 35% based on the taxable income for the
          year. Deferred taxes arising from temporary differences are
          recognized using the criteria set forth in Statement of Financial
          Accounting Standard No. 109, "Accounting for income taxes".

          The tax on minimum presumed income (TOMPI) is complementary to income
          tax because while the latter is levied on the year's taxable income,
          the tax on minimum presumed income is a minimum levy on the potential
          income from certain productive assets at a 1% tax rate; the tax
          obligation of the Company is equal to the higher of the two taxes.
          However, if the tax on minimum presumed income exceeds income tax in
          one tax year, such excess may be computed as a tax credit against any
          excess of income tax over the tax on minimum presumed income that
          might arise in any of the ten subsequent years.


                                      F-89
<PAGE>


          In the year ended December 31, 2000, and as a result of the enactment
          of Law No. 25,360 that extended the term over which the Company may
          compute minimum presumed income tax as payment on account of income
          tax to ten years, the Company has reversed in 2001 the valuation
          reserve against the minimum presumed income tax, which had been
          charged to income during the prior year. In addition, the Company has
          recorded minimum presumed income tax, which has been included in the
          Other noncurrent receivables account as minimum presumed income tax.

          As of December 31, 2002, a full valuation allowance was recorded
          against the tax deferred assets (including the tax loss
          carryforward), as management believed that realization of these
          benefits was not probable.

          During fiscal year 2003, the valuation allowance was reversed, as the
          Company considers that, according to management projections, it is
          more likely than not that the deferred tax assets will be realized.

          The calculated tax loss carryforward will be available to offset
          future taxable income until 2005 and 2006. In each fiscal year in
          which the tax loss carryforward is realized, the income tax benefit
          will be realized provided that income tax (after offsetting) equals
          or exceeds TOMPI, but will be reduced for any amount in which TOMPI
          may exceed income tax.

     d)   Assets and liabilities denominated in foreign currencies - Foreign
          exchange gains and losses are included in the determination of net
          income/loss for the relevant periods.

     e)   Use of estimates -- In preparing its financial statements, management
          is required to make certain assumptions and estimates with respect to
          the recording of assets, liabilities and transactions. Actual results
          in the future may differ from the estimates included in these
          financial statements.

     f)   Franchise revenues -- Initial franchise fees are recognized
          immediately, as the Company does not have any continuing obligation
          related to these amounts after the initial set up of the franchisee
          is complete. Royalties and advertising fees based on percentages of
          franchisees rental revenues are recognized as earned.

                                                        December 31,
                                                ----------------------------
                                                  2002      2003      2003
                                                --------  --------  --------
                                                  ARP       ARP       US$
                                                --------  --------  --------
4.   CASH:

     Cash                                            1         3         1
     Bank deposits                                   3        35        12
                                                  ----      ----      ----
                                                     4        38        13
                                                  ----      ----      ----

5.   ACCOUNTS RECEIVABLE:

     Current:

     Royalties and advertising fees                303       343       117
     Other                                          20        47        16
                                                  ----      ----      ----
                                                   323       390       133
     Less-Allowance for doubtful accounts          (50)      (53)      (18)
                                                  ----      ----      ----
                                                   273       337       115
                                                  ====      ====      ====


                                      F-90
<PAGE>


                                                        December 31,
                                                ----------------------------
                                                  2002      2003      2003
                                                --------  --------  --------
                                                  ARP       ARP       US$
                                                --------  --------  --------
     Non-current:
     Royalties and advertising fees                           15         5
                                                            ----      ----
                                                              15         5
                                                            ====      ====

6.   OTHER ASSETS:

     Current:
     Director fees advances                         30       113        39
     Other                                          12        32        10
                                                  ----      ----      ----
                                                    42       145        49
                                                  ====      ====      ====

     Non-current:
     Fiscal credits                                 71       166        57
                                                  ----      ----      ----
     Other                                           4         4         1
                                                  ----      ----      ----
                                                    75       170        58
                                                  ====      ====      ====

7.   OFFICE EQUIPMENT, NET:

     Furniture and fixtures                         56        60        21
     Software and equipment                          8         8         3
     Facilities                                      3         3         1
     Accumulated depreciation                      (54)      (64)      (22)
                                                  ----      ----      ----
                                                    13         7         3
                                                  ====      ====      ====

8.   INCOME TAX:

     The income tax consists of the following:

                                                        December 31,
                                                ----------------------------
                                                  2002      2003      2003
                                                --------  --------  --------
                                                  ARP       ARP       US$
                                                --------  --------  --------
     Current
     Deferred                                        -        62        21
                                                  ----      ----      ----
     Provision for income tax                        -        62        21
                                                  ----      ----      ----

     The provision for income tax differs from the amount computed by applying
     the statutory tax rate to net (loss) income before provision for income
     tax. The sources and tax effects of the differences are as follows:

                                                        December 31,
                                                ----------------------------
                                                  2002      2003      2003
                                                --------  --------  --------
                                                  ARP       ARP       US$
                                                --------  --------  --------
     Income before taxes                            51        35        12
     Nominal rate                                   35%       35%       35%
                                                  ----      ----      ----
     Income tax benefit at nominal rate             18        12         4
     Difference, net (in 2002 - adjustment for
       inflation)                                   27        (1)
                                                  ----      ----      ----
     Income tax - current                           45        11         4
     Tax loss carryforward used                    (45)      (11)       (4)
     Temporary differences, net                               62        21
                                                  ----      ----      ----
     Income tax - total                              -        62        21
                                                  ----      ----      ----


                                      F-91
<PAGE>


     Temporary differences, which give rise to deferred tax assets are as
     follows:

                                                        December 31,
                                                ----------------------------
                                                  2002      2003      2003
                                                --------  --------  --------
                                                  ARP       ARP       US$
                                                --------  --------  --------
     Allowance for doubtful accounts                 7         9         3
     Accrued contingencies                           3        --        --
     Tax loss carryforward (1)                      64        53        18
                                                  ----      ----      ----
     Subtotal                                       74        62        21
     Valuation allowance                           (74)       --        --
                                                  ----      ----      ----
     Net deferred tax asset                         --        62        21
                                                  ====      ====      ====

     (1)  Tax loss carryforward expires after five years. The expiration dates
          as of December 31, 2003 are as follows:

                     Year of
                    expiration      ARP        US$
                    ----------    -------    -------
                       2005          23         8
                       2006          30        10
                                     --        --
                                     53        18
                                     ==        ==

     The Company had established a valuation allowance against the net deferred
     tax asset position at December 31, 2002, as management believed that
     realization of these benefits were not probable at that time.

     During fiscal year 2003, the valuation allowance was reversed, as the
     Company considers that, according to management projections, it is more
     likely than not that the deferred tax assets will be realized.

9.   CAPITAL STOCK:

     After giving effect to the reduction of Capital stock approved by the
     Shareholders' meeting held October 2, 2002, as of December 31 2003,
     capital stock consisted of 25,000 shares, at a par value of ARP 1.00.
     Capital is held as follows:

                                           Shares outstanding at December 31,
                                           ---------------------------------
                                                 2002             2003
                                               --------         --------
     Localiza Franchising S.A.                   24,999          24,999
     Aristides Luciano Azevedo Newton                 1               1
                                               --------         --------
                                                 25,000          25,000
                                               --------         --------

10.  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

                                                Year ended December 31,
                                        --------------------------------------
                                          2001      2002      2003      2003
                                        --------  --------  --------  --------
                                          ARP       ARP       ARP       US$
                                        --------  --------  --------  --------

     Collection commissions                 21         -         -         -
     Provision for doubtful accounts        36        50         4         1
     Outside services                       34        56        54        18
     Other                                  52       116       100        35
                                          ----      ----      ----      ----
                                           143       222       158        54
                                          ====      ====      ====      ====


                                      F-92
<PAGE>


11.  FINANCIAL EXPENSES, NET:

                                                Year ended December, 31
                                        --------------------------------------
                                          2001      2002      2003      2003
                                        --------  --------  --------  --------
                                          ARP       ARP       ARP       US$
                                        --------  --------  --------  --------

     Interest income                         1         7         1         -
     Interest expense                      (13)       (4)       (2)        -
     Tax on financial revenues              (3)        -         -         -
     Exchange gain                           5         6         1         -
                                          ----      ----      ----      ----
                                           (10)        9         -         -
                                          ====      ====      ====      ====

12.  IMPACT OF ARGENTINA'S RECENT ECONOMIC REFORMS ON THE COMPANY'S
     OPERATIONS

     Beginning in 1991, the Argentine government maintained the value of its
     currency such that one Argentine peso equaled one U.S. dollar. During
     2001, Argentina suffered a severe economic and monetary crisis. In early
     January 2002, as Argentina's ongoing political and financial crisis
     deepened, the country defaulted on its massive foreign debt and the
     Argentine government abandoned the decade-old fixed peso-dollar exchange
     rate and permitted the peso to float freely against the U.S. dollar. The
     peso free market opened on January 11, 2002 and the peso traded at 0.606
     U.S. dollars per peso (1.65 pesos to the U.S. dollar). After a
     significant devaluation in 2002, the peso ended 2002 and 2003 with a
     value of 0.297 U.S. dollars per peso and 0.341 U.S. dollars per peso,
     respectively.

     The devaluation of the peso affected and will generally affect the
     Company's consolidated financial statements by generating foreign
     exchange gains or losses on monetary assets and liabilities denominated
     in foreign currencies, and will generally result in a decrease, in U.S.
     dollar terms, in the Company's revenues, costs and expenses. The
     devaluation may have adverse, unknown and unforeseeable effects on the
     Company.

     Numerous uncertainties exist surrounding the ultimate resolution of
     Argentina's economic and political instability and actual results could
     differ from those estimates and assumptions utilized. The Argentine
     economic and political situation continues to evolve and the Argentine
     Government may enact future regulations or policies, or change its
     interpretation of current regulations and policies, whose ultimate effect
     on the Company's financial position and the related impact on the
     Company's future operations, if any, cannot be predicted with certainty
     at this time.

13.  BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     Balances and revenues (expenses) on transactions completed with Localiza
     Franchising S.A. are as follows:

                                                  Localiza Franchising S.A.
                                                     As of December 31,
                                                ----------------------------
                                                  2001      2002      2003
                                                --------  --------  --------

     Payables                                       32       152       215

     Income (expense):

     Other charges                                 (10)        -         -
     Interest paid                                   1         -         -
     Expense reimbursement                          27         -         -


                                      F-93
<PAGE>


     During 2001, the Company's shareholder has transferred to Localiza MFA,
     effective January 1st 2001, the rights and obligations derived from
     franchise agreements signed with franchisees from Paraguay, Uruguay,
     Bolivia, Mexico, Peru and Aruba. Accordingly, Royalties and advertising
     fees include approximately 100 for franchise fees from these franchisees.

14.  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS
     No 141, "Business Combinations". SFAS No 141 is effective for all
     business combinations initiated after June 30, 2001 and to all business
     combination accounted for using the purchase method for which the date of
     acquisition is July 1, 2001 or later. SFAS No. 141 requires all business
     combinations initiated after June 30, 2001 to be accounted for using the
     purchase method. The adoption of SFAS No. 141 had no impact on the
     Company.

     In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
     Assets". SFAS No. 142 is effective for fiscal years beginning after
     December 15, 2001. Early application of SFAS No. 142 is permitted for
     entities with fiscal years beginning after March 15, 2001, provided that
     the first interim financial statements have not previously been issued.
     With the adoption of SFAS No. 142, goodwill is no longer subject to
     amortization over estimated useful life, but rather it will be subject to
     at least an annual assessment for impairment by applying a
     fair-value-based test. Additionally, negative goodwill is recognized as
     an extraordinary gain at the time of the business combination. The
     adoption of SFAS No. 142 had no impact on the Company.

     In June 2001, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 143, "Accounting for Asset Retirement
     Obligations" ("SFAS No. 143"), which is effective for years beginning
     after June 15, 2002, which will be the Company's fiscal year 2003. SFAS
     No. 143 addresses legal obligations associated with the retirement of
     tangible long-lived assets that result from the acquisition, construction,
     development or normal operation of a long-lived asset. The standard
     requires that the fair value of a liability for an asset retirement
     obligation be recognized in the period in which it is incurred if a
     reasonable estimate of fair value can be made. The fair value of the
     liability is added to the carrying amount of the related asset and
     depreciated over the life of the asset. The liability is accreted each
     period through charges to operating expense. If the obligation is settled
     for other than the carrying amount of the liability, the Company will
     recognize a gain or loss on settlement. The adoption of SFAS No. 143 on
     January 1, 2003 had no impact on the Company.

     In August 2001 the FASB issued SFAS No. 144, "Accounting for the
     impairment or Disposal of Long-Lived Assets". The new standard will be
     effective for financial statements issued for fiscal years beginning after
     December 15, 2001 with early application encouraged. SFAS No. 144
     addresses financial accounting and reporting for the impairment of
     long-lived assets and for long-lived assets to be disposed of an
     supersedes SFAS No. 121, "Accounting for the impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of". However, this
     Statement retains the fundamental provision of SFAS No. 121 for (a)
     recognition and measurement of the impairment of long-lived assets to be
     held and used and (b) measurement of long-lived assets to be disposed of
     by sale. SFAS No. 144 also supersedes the accounting and reporting
     provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting
     the Results of Operations - Reporting the Effects of Disposal of a Segment
     of a Business, and Extraordinary, Unusual and Infrequent Occurring Events
     and Transactions" for segments of a business to be disposed of to expand
     discontinued operations presentation to a component of an entity. Finally,
     SFAS No. 144 amends Accounting Research Bulletin (ARB) No. 51,
     "Consolidated Financial Statements", to eliminate the exception to
     consolidation for a temporarily controlled subsidiary. The adoption of
     SFAS No. 144 had no impact on the Company.


                                      F-94
<PAGE>


     In April 2002, the FASB issued Statements of Accounting Standards No. 145,
     "Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical
     Corrections as of "April 2002" ("SFAS 145"). SFAS 145 rescinds SFAS No. 4,
     "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 44,
     "Accounting for Intangible Assets of Motor Carriers," and SFAS 64,
     "Extinguishments of Debt made to satisfy Sinking-Fund requirements." As a
     result, gains and losses from extinguishment of debt will no longer be
     classified as extraordinary items unless they meet the criteria of unusual
     or infrequent as described in Accounting Principles Boards Opinion 30,
     "Reporting the Results of Operations - Reporting the Effects of Disposal
     of a Segment of a Business, and Extraordinary, Unusual and Infrequently
     Occurring Events and Transactions." In addition, SFAS 145 amends SFAS 13,
     "Accounting for Leases," to eliminate an inconsistency between the
     required accounting for sale-leaseback transactions and the required
     accounting for certain lease modifications that have economic effects that
     are similar to sale-leaseback transactions. SFAS 145 also amends other
     existing authoritative pronouncements to make various technical
     corrections, clarify meanings, or describe their applicability under
     changed conditions. SFAS 145 is effective for fiscal years beginning after
     May 15, 2002. The adoption of SFAS No. 145 had no impact on the Company.

     In June 2002, the FASB issued Statement of Accounting Standards No. 146,
     "Accounting for Costs Associated with Exit or Disposal Activities". This
     Statement addresses financial accounting and reporting for costs
     associated with exit or disposal activities and nullifies Emerging Issues
     Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
     Termination Benefits and Other Costs to Exit an Activity (including
     Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146
     eliminates the definition and requirements for recognition of exit costs
     in EITF 94-3. SFAS 146 requires that a liability for a cost associated
     with an exit or disposal activity be recognized when the liability is
     incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF
     94-3 was recognized at the date of an entity's commitment to an exit plan.
     SFAS 146 also concluded that an entity's commitment to a plan, by itself,
     does not create a present obligation to others that meets the definition
     of a liability. SFAS 146 also establishes that fair value is the objective
     for initial measurement of the liability. During 2003, the Company did not
     have any exit or disposal activities and consequently, this statement did
     not have an impact on the Company's financial statements during the year
     ended December 31, 2003.

     In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
     Accounting and Disclosure Requirements for Guarantees, Including Indirect
     Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation
     requires certain disclosures to be made by a guarantor in its interim and
     annual financial statements about its obligations under certain guarantees
     that it has issued. It also requires a guarantor to recognize, at the
     inception of a guarantee, a liability for the fair value of the obligation
     undertaken in issuing the guarantee. The disclosure requirements of FIN 45
     are effective for interim and annual periods after December 15, 2002. The
     initial recognition and initial measurement requirements of FIN 45 are
     effective prospectively for guarantees issued or modified after December
     31, 2002. The adoption of this statement did not have an impact on the
     Company's financial statements for the year ended December 31, 2003.

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
     FASB Interpretation No. 46, Consolidation of Variable Interest Entities
     ("FIN No. 46"). FIN No. 46 addresses consolidation by business enterprises
     of variable interest entities that possess certain characteristics. The
     interpretation requires that if a business enterprise has a controlling
     financial interest in a variable interest entity, the assets, liabilities
     and results of operations of the variable interest entity must be included
     in the consolidated financial statements with those of the business
     enterprise. This interpretation applies immediately to variable interest
     entities created after January 31, 2003 and to variable interest entities
     in which an enterprise obtains an interest after that date. In December
     2003, the FASB issued FASB Interpretation No. 46R, Consolidation of
     Variable Interest Entities--an interpretation of ARB 51 (revised December
     2003) ("FIN No. 46R"), which includes significant amendments to previously
     issued FIN No. 46. Among other provisions, FIN No. 46R includes revised
     transition dates for public entities. The Company is now required to adopt
     the provisions of FIN No. 46R no later than the end of the first reporting
     period that ends after March 15, 2004. The adoption of this statement did
     not have an impact on the Company's financial statements for the year
     ended December 31, 2003.


                                      F-95
<PAGE>


     In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments
     with Characteristics of both Liabilities and Equity, was issued effective
     for financial instruments entered into or modified after May 31, 2003, and
     otherwise is effective at the beginning of the first interim period
     beginning after June 15, 2003, with the exception of an indefinite
     deferral relating to application to limited life entities. This statement
     establishes standards for how an issuer classifies and measures certain
     financial instruments with characteristics of both liabilities and equity.
     It requires that an issuer classify a financial instrument that is within
     its scope as a liability (or an asset in some circumstances). The adoption
     of SFAS No. 150 did not result in the reclassification of any financial
     instruments in the Company's financial statements.

                            LEONARDO FEDERICI GUEDES
                                    Chairman






                                      F-96

<PAGE>

                                 EXHIBIT INDEX
                                 -------------

1.1  Charter and bylaws of Localiza Rent a Car S.A. (English translation)

1.2  Charter and bylaws of Total Fleet S.A. (English translation)1

1.3  Charter and bylaws of Localiza Franchising S.A. (English translation)

1.4  Charter and bylaws of Prime Prestadora de Servicos S.A. (English
     translation)

1.5  Charter and bylaws of Localiza Master Franchisee Argentina S.A. (English
     translation)2

8.1  List of significant subsidiaries

10.1 Consent of Deloitte Touche Tohmatsu Auditores Independentes as of December
     31, 2002 and 2003 and for the three years in the period ended December 31,
     2003 (Localiza)

10.2 Consent of Deloitte Touche Tohmatsu Auditores Independentes as of December
     31, 2002 and 2003 and for the three years in the period ended December 31,
     2003 (Franchising)

10.3 Consent of Deloitte & Co. S.R.L. as of December 31, 2002 and 2003 and for
     the two years in the period ended December 31, 2003 (MFA)

10.4 Letter from MFA regarding certain representations given by Andersen3

10.5 Notice issued by MFA regarding consent of Andersen

11.1 Code of Ethics of Localiza Rent a Car S.A. and Subsidiaries

12.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Localiza)

12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Total Fleet)

12.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Franchising)

12.4 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (Prime)

12.5 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003
     (MFA)

13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Localiza)

13.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Total Fleet)

13.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Franchising)

13.4 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (Prime)

13.5 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003
     (MFA)

----------------------
1 Incorporated by reference to our Annual Report in Form 20-F for fiscal year
  ended December 31, 2001 (File No. 333-8128) filed with the SEC on June 28,
  2002.

2 Incorporated by reference to our Annual Report in Form 20-F for fiscal year
  ended December 31, 2002 (File No. 333-8128) filed with the SEC on June 30,
  2003.

3 Copy of a letter filed with the SEC on June 28,2002.