<PAGE>
THE BRAZILIAN INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs R. Charles Tschampion
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
William G. Morton, Jr. ASSISTANT TREASURER
DIRECTOR
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
U.S. ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
BRAZILIAN ADMINISTRATOR AND CUSTODIAN
Unibanco-Uniao de Bancos Brasileiros S.A.
Avenida Eusebio Matoso, 891,
Sao Paulo, S.P., Brazil
- --------------------------------------------------------
U.S. CUSTODIAN
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
(800) 548-7786
- --------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------
THE
BRAZILIAN INVESTMENT
FUND, INC.
---------------------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the fourth quarter of 1995, the Fund's total return based on net asset value
per share was -13.28% compared to -10.96% for the IFC Total Return Index for
Brazil (the "IFC Index"). The Fund's results were primarily due to an
overweighting in the banking sector, which underperformed for the quarter owing
to concerns about asset quality brought on by high interest rates and, an
economic slowdown. For the year ended December 31, 1995, the Fund's total return
based on net asset value per share was -26.61% versus -20.24% for the IFC Index.
The market's performance for the quarter was the result of many factors.
First, interest rates -- though declining -- did not fall as fast as the market
had anticipated. After the sharp run-up in the third quarter, this expectation
disappointment triggered a profit-taking correction. Secondly, two relatively
minor political scandals caught the government by surprise and distracted
much-needed attention from the reform process. As if that weren't enough,
President Cardoso was travelling in China when the scandal hit, feeding fuel to
the doomsayers who charged that the government had lost its focus. Lastly, the
banking sector and overall market was spooked by the central bank takeover of
Brazil's seventh largest bank, Banco Nacional in mid-November -- the third such
takeover the central bank has orchestrated this year.
THE MACRO SCENARIO
1995 was, by all accounts, a tough year, and the Cardoso administration's
performance was good, if not great. The Cardoso government's biggest
accomplishment to date has been to slay inflation. Nevertheless, in the absence
of structural reforms, the government has only two weapons with which to
continue to fight "inertial" inflationary pressures -- the foreign exchange rate
and interest rates. When the Mexican crisis occurred in mid-December 1994, and
the so-called "Tequila effect" spread to the rest of Latin America in early
January 1995, the authorities were forced to confront yet another challenge --
the preservation of their external accounts. Coupled with an explosion in
domestic consumption as a result of the fall in inflation, this external threat
posed an enormous challenge for the authorities to contain. Thus, they were
forced to hike real interest rates to over 20% annually for the majority of the
year, which served the dual purpose of slowing down the economy and preserving
the value of the currency while building international reserves.
Simultaneously, the Cardoso administration made tangible progress on certain
reform initiatives. Restrictions governing private investment in important
economic sectors including the oil and gas, telecommunications, piped gas, and
coastal shipping sectors -- were eased. A major electric utility, Escelsa, was
privatized. Nonetheless, there is a great deal of work that remains to be done.
Admittedly, the easy reforms are those that have been passed, and the more
contentious ones remain.
By the end of the year a different set of challenges emerged for the
government. Having successfully engineered a slowdown of the economy, managed an
orderly nominal devaluation of the currency, and built a $50 billion war chest
of international reserves, the government must now tackle the cumbersome issue
of structural reform. The fiscal accounts, largely due to unchecked wage hikes
at the state and municipal level for public workers, deteriorated markedly in
1995. The operational deficit grew to roughly 4% of GDP. At its best, this
budget deficit pushes up interest rates and crowds out private investment; at
its worst, it becomes inflationary. Therefore, the biggest task presently facing
the government is to a) improve the TREND in its fiscal accounts over the
short-term, and b) make progress on fiscal reform inititatives so as to improve
the outlook for its fiscal accounts in the medium to long-term.
Looking ahead, we are targeting a few key areas to be watchful of for
positive signals: first, passage of the fiscal stabilization fund, which allows
the government to restrain spending pressures; second, a disciplined posture
with respect to public worker wage negotiations; third, a coherent strategy with
respect to ushering through congress the various fiscal reform measures --
including the all-important administrative and social security reform
initiatives; and fourth, successful completion of a couple of important
privatizations, especially Rio de Janeiro electric utility Light and iron ore
and mining company Compania Vale do Rio Doce (CVRD). If there is progress on the
above items -- and we are optimistic that there will be -- then the declining
trend of interest rates should continue and the exchange rate will remain
stable. All of the above should bode extremely well for the stock market.
THE STOCK MARKET PERSPECTIVE
In general terms, the stock market did poorly in 1995 due principally to a)
a regional sell-off early in the year, b) high real interest rates, and c)
disappointment on the lack of DRAMATIC reform progress by the Cardoso
administration. For the exact opposite reasons, we are bullish on the outlook
for 1996. We think the entire Latin American region will post a strong equity
market performance in 1996 as U.S. investors look abroad again and realize that
most Latin governments are still committed to reform and valuations are
attractive. Further, real interest rates in Brazil, while high, are
2
<PAGE>
falling and will likely continue to do so throughout the year as inflationary
pressures taper. And lastly, the wild card will be progress on the reform front.
While we recognize that the Cardoso administration faces a tough task in the
special-interest-influenced congress, we think market expectations are
relatively low and that the Cardoso government -- when their back is against the
wall -- will be able to make visible progress and "positively surprise" on the
reform front.
Our general bias is to favor those companies which have strong secular
growth outlooks, domestic market demand characteristics, and positive change on
the horizon. Our favorite sectors among the private-sector companies are the
beer and banking sectors, and among the public-sector companies the
telecommunications and petroleum sectors.
The beer sector, specifically the beer company Brahma, has been and
continues to be one of our favorite stocks. Demand growth for beer in Brazil has
been explosive -- it increased roughly 20% in 1995 -- and Brahma has the leading
brands in the country and is increasing capacity over the next two years by
almost 40%. With purchasing power increasing at a faster pace than economic
activity, we expect continued high demand and earnings growth for this company
in the coming years.
The banking sector, while undergoing a dramatic and at times painful
transformation, also has enormous growth potential. Credit penetration in
Brazil, because of the inflationary past, is extremely low and only at the
beginning stages of growth. Banks in general are under-leveraged and
over-capitalized and, as the economy expands with low inflation, should
experience strong loan and earnings growth. Our two favorite banks, Banco
Bradesco and Banco Itau, have tremendous franchise value, strong branch
networks, and trade at only modest premiums to book value.
The telecommunications sector is yet another area for huge secular growth.
While we recognize that the telecommunications sector is still state-run, and
will likely continue to be in the foreseeable future, we see Telebras as a
relatively well-run state company that is investing heavily in the expansion of
its core fixed line and cellular businesses to satisfy pent-up demand. We think
an increase in earnings visibility and growth this year will allow Telebras to
break away from its state-company brethren and be re-rated as a true growth
stock.
Lastly, we are warming up to the petroleum sector, as we see positive change
on the horizon. State oil monopoly Petrobras a) has recently been granted the
opportunity to joint-venture with private sector capital as a means of
leveraging its activities in the upstream business, b) is ramping up its
domestic oil production to diminish its dependence on oil imports and improve
its cash flow, and c) should benefit from an eventual modest liberalization of
the downstream oil and gas pricing regime which we expect to be forthcoming in
the not too distant future.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
[SIGNATURE]
Robert L. Meyer
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Andy Skov
PORTFOLIO MANAGER
February 2, 1996
3
<PAGE>
The Brazilian Investment Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
--------------------------------------------------
NET ASSET VALUE (2) INDEX (1)(3)**
----------------------- -------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
----------------------- -------------------------
<S> <C> <C> <C> <C>
ONE YEAR -26.61% -26.61% -20.24% -20.24%
SINCE INCEPTION* 135.61 20.59 180.44 25.20
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1991* 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 63.31 $ 55.28 $ 83.58 $ 129.97 $ 64.14
Income Dividends - - - $ 1.80 -
Capital Gains Distributions - - $ 7.06 $ 6.65 $ 37.73
Fund Total Return (2) 26.62% (12.68%) 72.52% 68.32% (26.61%)
Index Total Return(1)(3)** 3.48% 0.32% 99.45% 69.83% (20.24%)
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. The Fund's shares are issued in a private placement and not
traded; therefore, market value total investment return is not calculated.
(3) IFC Total Return Index for Brazil
* The Fund commenced operations on June 4, 1991.
** Unaudited.
4
<PAGE>
The Brazilian Investment Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 99.0%
Short-Term Investments 1.0%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Telecommunications 24.9%
Utilities - Electrical &
Gas 20.0%
Beverages & Tobacco 13.9%
Banking 12.1%
Merchandising 7.7%
Metals -- Non-Ferrous 4.0%
Energy Sources 3.9%
Textiles & Apparel 2.3%
Machinery & Engineering 2.1%
Industrial Components 2.0%
Other 7.1%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
------------
<C> <S> <C>
1. Telebras 17.4%
2. Brahma 14.0
3. Eletrobras (Common) 8.6
4. Lojas Renner 4.8
5. Banco Bradesco 4.6
<CAPTION>
PERCENT OF
NET ASSETS
------------
<C> <S> <C>
6. CVRD 4.0%
7. Petrobras 4.0
8. Banco do Brasil 3.7
9. Telebras ADR 3.5
10. Banco Itau 3.1
---
67.7%
---
---
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
BRAZILIAN INVESTMENT FUND (97.4%)
- --------------------------------------------------
- ----------
BRAZILIAN NON-VOTING PREFERRED STOCKS (96.4%)
(Unless otherwise noted)
- ---------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (0.4%)
Refripar 43,520,927 U.S.$ 87
Refripar (Common) 23,893,000 42
-----------
129
-----------
- ---------------------------------------------------------
- -------------
BANKING (12.1%)
Banco Bradesco 187,301,708 1,638
+***Banco Bradesco (Rights) 8,660,218 14
+Banco do Brasil 117,642,000 1,332
Banco Itau 4,032,500 1,124
**Banco Nacional 112,483,664 232
-----------
4,340
-----------
- ---------------------------------------------------------
- -------------
BEVERAGES & TOBACCO (13.9%)
Brahma 12,187,489 5,016
-----------
- ---------------------------------------------------------
- -------------
ENERGY SOURCES (3.9%)
Petrobras 16,640,000 1,421
-----------
- ---------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (1.3%)
+Dixie Toga 461,291 403
+Dixie Toga (Receipts) 55,167 48
-----------
451
-----------
- ---------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (2.0%)
Schulz 24,570,000 721
-----------
- ---------------------------------------------------------
- -------------
MACHINERY & ENGINEERING (2.1%)
WEG 1,822,000 750
-----------
- ---------------------------------------------------------
- -------------
MERCHANDISING (7.7%)
#+Cia Brasileira ADR 76,450 765
Lojas Americanas 183,270 26
+Lojas Arapua ADR 30,140 256
Lojas Renner 64,370,000 1,722
-----------
2,769
-----------
- ---------------------------------------------------------
- -------------
METALS -- NON-FERROUS (4.0%)
CVRD 8,700,000 1,432
-----------
- ---------------------------------------------------------
- -------------
METALS -- STEEL (1.8%)
Usiminas 776,700,000 631
-----------
- ---------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (24.9%)
Telebras 130,044,895 U.S.$6,262
Telebras ADR 26,200 1,241
Telebras (Common) 28,453,000 1,101
Telesp 1,245,601 183
Telesp (Common) 1,200,500 174
-----------
8,961
-----------
- ---------------------------------------------------------
- -------------
TEXTILES & APPAREL (2.3%)
Coteminas 1,200,000 401
+Wentex 318,000 439
-----------
840
-----------
- ---------------------------------------------------------
- -------------
UTILITIES--ELECTRICAL & GAS (20.0%)
Cemig 46,400,000 1,027
#Cemig ADR 18,357 406
+CESP 90 --
CPFL 22,591,000 604
Eletrobras ADR 15,250 206
Eletrobras 'B' 2,940,000 796
Eletrobras (Common) 11,372,000 3,077
Light (Common) 3,420,000 1,094
-----------
7,210
-----------
- ---------------------------------------------------------
- -------------
TOTAL BRAZILIAN NON-VOTING PREFERRED
STOCKS
(Cost U.S. $36,931) 34,671
-----------
- ---------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (1.0%)
Brazilian Real (Cost U.S.
$344) BRL 334 344
-----------
- ---------------------------------------------------------
- -------------
TOTAL BRAZILIAN INVESTMENT FUND
(Cost U.S. $37,275) 35,015
-----------
- ---------------------------------------------------------
- -------------
TOTAL INVESTMENTS (97.4%)
(Cost U.S. $37,275) 35,015
-----------
- ---------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
OTHER ASSETS (5.3%)
Cash U.S.$ 65
Receivable for Investments
Sold 1,642
Dividends Receivable 145
Deferred Organization Costs 38
Other Assets 7 U.S.$1,897
------------- -----------
- ---------------------------------------------------------
- -------------
LIABILITIES (-2.7%)
Payable for:
Investments Purchased (865)
Professional Fees (39)
Investment Advisory Fees (21)
Shareholder Reporting
Expenses (13)
Administrative and
Transfer Agent Fees (9)
Directors' Fees and
Expenses (6)
Brazilian Administrative
and Custodian Fees (4)
U.S. Custodian Fees (1) (958 )
------------- -----------
- ---------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 560,593
issued and outstanding
U.S. $0.01 par value
shares (50,000,000 shares
authorized) U.S.$35,954
-------------
- ---------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 64.14
-------------
</TABLE>
- ---------------------------------------------
- ---------
+ -- Non-income producing
** -- Security valued at fair value -- see Note A-1 to financial statements.
*** -- Security valued at fair value as determined based on the market value of
the underlying security less subscription costs.
# -- 144A security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt.
December 31, 1995 exchange rate--Brazilian Real (BRL) 0.9719 = U.S. $1.00
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------
Common Stock U.S.$ 6
Capital Surplus 20,804
Accumulated Net Realized
Gain 17,409
Unrealized Depreciation on
Investments and Foreign
Currency Translations (2,265)
- ------------------------------------------------------------
TOTAL NET ASSETS U.S.$35,954
-------------
</TABLE>
- -----------------------------------------------------------------
- -------------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends............................................... U.S.$ 909
Interest................................................ 25
Less: Foreign Taxes Withheld............................ (129)
- -------------------------------------------------------------------------------
Total Income.......................................... 805
- -------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................ 375
U.S. Administrative and Transfer Agent Fees............. 118
Amortization of Organization Costs...................... 89
Brazilian Administrative and Custodian Fees............. 63
Audit Fees.............................................. 56
Directors' Fees and Expenses............................ 31
Shareholder Reporting Expenses.......................... 31
Legal Fees.............................................. 22
Custodian Fees.......................................... 2
Other Expenses.......................................... 78
- -------------------------------------------------------------------------------
Total Expenses........................................ 865
- -------------------------------------------------------------------------------
Net Investment Loss................................. (60)
- -------------------------------------------------------------------------------
NET REALIZED GAIN
Investment Securities Sold.............................. 17,408
Foreign Currency Transactions........................... 32
- -------------------------------------------------------------------------------
Net Realized Gain................................... 17,440
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investments............................................. (34,668)
Foreign Currency Translations........................... (12)
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation).... (34,680)
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation (Depreciation)................................ (17,240)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$(17,300)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss........................... U.S.$ (446) U.S.$ (60)
Net Realized Gain............................. 24,028 17,440
Change in Unrealized Appreciation
(Depreciation)............................... 10,907 (34,680)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations.................... 34,489 (17,300)
- -----------------------------------------------------------------------------------------
Distributions:
In Excess of Net Investment Income............ (1,122) --
Net Realized Gain............................. (4,148) (23,408)
- -----------------------------------------------------------------------------------------
Total Distributions........................... (5,270) (23,408)
- -----------------------------------------------------------------------------------------
Capital Share Transactions:
Subscription of Shares (4,128 and 25,702
shares, respectively)........................ 445 1,853
Reinvestment of Distributions (50,471 and
286,103 shares, respectively)................ 5,220 23,041
Repurchase of Shares (53,929 and 376,486
shares, respectively)........................ (5,827) (29,496)
- -----------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting From
Capital Share Transactions................... (162) (4,602)
- -----------------------------------------------------------------------------------------
Total Increase (Decrease)..................... 29,057 (45,310)
Net Assets:
Beginning of Year............................. 52,207 81,264
- -----------------------------------------------------------------------------------------
End of Year (including accumulated net
investment loss of U.S. $36 and U.S. $0,
respectively................................. U.S.$81,264 U.S.$ 35,954
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
PERIOD FROM
JUNE 4, 1991* TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS: 1991 1992 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........... U.S.$50.00 U.S.$63.31 U.S.$55.28 U.S.$83.58 U.S.$129.97
- ---------------------------------------------------------------------------------------------------------------------
Offering Costs................................. (0.21) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss)................... 0.84 (0.09) 1.42 (0.71) (0.11)
Net Realized and Unrealized Gain (Loss) on
Investments................................... 12.68 (7.94) 33.94 55.55 (27.99)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations........... 13.52 (8.03) 35.36 54.84 (28.10)
- ---------------------------------------------------------------------------------------------------------------------
Distributions:
In Excess of Net Investment Income......... -- -- -- (1.80) --
Net Realized Gain.......................... -- -- (6.89) (6.65) (37.73)
In Excess of Net Realized Gain............. -- -- (0.17) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions........................ -- -- (7.06) (8.45) (37.73)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................. U.S.$63.31 U.S.$55.28 U.S.$83.58 U.S.$129.97 U.S.$64.14
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)........................ 26.62% (12.68)% 72.52% 68.32% (26.61)%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS).......... U.S.$51,159 U.S.$46,687 U.S.$52,207 U.S.$81,264 U.S.$35,954
- ---------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets........ 2.00%**(2) 2.27%(2) 2.22% 1.82% 2.07%
Ratio of Net Investment Income (Loss) to
Average Net Assets............................ 3.49%** (0.07)% 1.57% (0.61)% (0.14)%
Portfolio Turnover Rate........................ 1% 36% 40% 52% 112%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
(1)Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. The Fund's shares are issued in a private placement and are not
traded; therefore, market value total investment return is not calculated.
Total return for the periods ended December 31, 1991 and 1992 would have been
lower were it not for voluntary expense limits.
(2)Reflects a voluntary expense limitation in effect during the period. As a
result of such limitation, expenses of the Fund for the periods ended
December 31, 1991 and 1992 reflect a benefit of U.S.$0.10 and U.S.$0.14,
respectively.
Note: Current period permanent book-tax differences, if any, are not included
in the calculation of net investment income (loss) per share.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
The Brazilian Investment Fund, Inc. (the "Fund") was incorporated on
November 7, 1990, and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's common stock is not registered under the Securities Act of 1933. The
Fund's investment objective is long-term capital appreciation through
investments primarily in equity securities. The Fund makes its investments in
Brazil through an investment fund established in compliance with Brazilian law.
The accompanying financial statements are prepared on a consolidated basis and
present the financial position and results of operations of the investment fund
and the Fund.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all
listed securities, including purchased options, for which market quotations
are readily available are valued at the last sales price on the valuation
date, or if there was no sale on such date, at the mean between the current
bid and asked prices. Securities which are traded over-the-counter are
valued at the average of the mean of current bid and asked prices obtained
from reputable brokers. All non-equity securities as to which market
quotations are readily available are valued at their market values.
Short-term securities which mature in 60 days or less are valued at
amortized cost. Other securities and assets for which market values are not
readily available (including investments which are subject to limitations as
to their sale or for which a ready market for the securities in the
quantities owned by the Fund does not exist) are valued at fair value as
determined in good faith by the Board of Directors (the "Board"), although
the actual calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for U.S. Federal income taxes is required
in the financial statements.
Accumulated undistributed net investment income and accumulated realized
gain have been adjusted for current and prior period permanent book-tax
differences. Current period adjustments arose principally from differing
book-tax treatments for foreign currency transactions and net operating
losses.
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, the value of which equals or
exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. In the event of default
on the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. To the
extent that proceeds from the sale of the underlying securities are less
than the repurchase price under the agreement, the Fund may incur a loss. In
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject to
legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and
records of the Fund are maintained in U.S. dollars. Amounts denominated in
Brazilian currency are translated into U.S. dollars at the mean of the bid
and asked prices of such currency against U.S. dollars last quoted by a
major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rate and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in
the foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at period end. Similarly, the Fund does
not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities sold
during the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses)
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<PAGE>
from sales and maturities of forward foreign currency contracts, disposition
of foreign currency and currency gains or losses realized between the trade
and settlement dates on securities transactions. Foreign currency gains
(losses) also occur due to the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains (losses) from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of
unrealized appreciation (depreciation) in the Statement of Net Assets. The
change in net unrealized currency gains (losses) for the period is reflected
in the Statement of Operations.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund
may enter into forward foreign currency contracts to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange
rates. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as unrealized gain or loss. The Fund records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Risk may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. PURCHASED OPTIONS: The Fund may purchase
options. In purchasing a call (put) option, the Fund will seek to benefit from
an increase (decline) in the market price of the underlying index or
security. Risks may arise in the event of default by the counterparty or
unanticipated movements in the market price of the underlying index or
security, however, the maximum exposure to loss for any purchased option is
limited to the premium initially paid for the option. Realized gains or
losses on purchased options are included with net gain (loss) on securities
sold in the financial statements.
7. OTHER: Security transactions are accounted for on
the date the securities are purchased or sold. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of losses on securities and due to permanent
differences described in note A-2.
B. Morgan Stanley Asset Management Inc. (the "U.S. Adviser") provides
investment advisory services to the Fund under the terms of an Investment
Advisory Agreement (the "Agreement"). Under the Agreement, the U.S. Adviser is
paid a fee computed weekly and payable monthly at an annual rate of .90% of the
Fund's first $50 million of average weekly net assets, .70% of the Fund's next
$50 million of average weekly net assets and .50% of the Fund's average weekly
net assets in excess of $100 million.
C. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative and shareholder services to
the Fund under an Administration Agreement. Under the Administration Agreement,
the Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .08% of the Fund's average weekly net assets, plus $75,000 per annum. In
addition, the Fund is charged certain out of pocket expenses by the
Administrator. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
D. Unibanco - Uniao de Bancos Brasileiras S.A. ("the Brazilian Administrator
and Custodian") provides Brazilian administrative and custodian services to the
Fund under the terms of an agreement. Under the agreement, the Brazilian
Administrator and Custodian is paid a fee computed weekly and paid monthly at an
annual rate of .15% of the Fund's first $50 million of average weekly net
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<PAGE>
assets, .125% of the Fund's next $50 million of average weekly net assets and
.10% of the Fund's average weekly net assets in excess of $100 million.
E. During the year ended December 31, 1995, the Fund made purchases and sales
totaling $48,108,000 and $77,135,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases and sales of long-term U.S. Government securities. At
December 31, 1995, the U.S. Federal income tax cost basis of securities was
$37,106,000 and accordingly, net unrealized depreciation for U.S. Federal income
tax purposes was $2,435,000, of which $2,412,000, related to appreciated
securities and $4,847,000 related to depreciated securities.
F. In connection with its organization the Fund incurred $445,000 of
organization costs which are being amortized on a straight-line basis over a
five year period beginning June 4, 1991, the date the Fund commenced operations.
G. At December 31, 1995, a significant portion of the Fund's net assets consist
of securities denominated in Brazilian currency. Changes in currency exchange
rates will affect the value of and investment income from such securities.
Brazilian securities are subject to greater price volatility, limited
capitalization and liquidity, and higher rates of inflation than securities of
companies based in the United States. In addition, Brazilian securities may be
subject to substantial governmental involvement in the economy and greater
social, economic and political uncertainty.
H. The Fund's Articles of Incorporation provide that, commencing January 6,
1992 and on each calendar quarter thereafter, the Fund will make a tender offer
to repurchase its outstanding shares of Common Stock at a price equal to the net
asset value per share at the time of repurchase.
During the year ended December 31, 1995, the Fund repurchased the following
shares:
<TABLE>
<CAPTION>
U.S.
DATE SHARES (000)
- --------- --------- ---------
<S> <C> <C>
2/6/95 312,637 $ 24,964
5/5/95 41,019 $ 2,975
8/4/95 2,544 $ 180
11/6/95 20,286 $ 1,377
</TABLE>
On February 5, 1996, the Fund repurchased 15,131 shares totaling $653,000.
I. Shareholders of the Fund may purchase shares of Common Stock from the Fund
at a price equal to the net asset value at the beginning of the month. Purchases
are not allowed during each month the Fund makes a tender offer to repurchase
its outstanding shares. During the year ended December 31, 1995, the Fund issued
25,702 shares totaling $1,853,000.
J. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. At December 31, 1995, none of the Directors elected to participate in the
Plan.
K. During December 1995, the Board declared a distribution of $29.97 per share,
derived from net realized gains, payable on January 9, 1996, to shareholders of
record on December 29, 1995.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund designates $17,954,000 as
long-term capital gain dividend.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
The Brazilian Investment Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Brazilian Investment Fund, Inc. (the "Fund") at December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the four years in the period then ended and for the period June 4,
1991 (commencement of operations) through December 31, 1991, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
13
