<PAGE>
THE BRAZILIAN INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS R. Charles Tschampion
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE James W. Grisham
BOARD OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Michael F. Klein
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones James R. Rooney
DIRECTOR TREASURER
John A. Levin Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
U.S. ADMINISTRATOR
The Chase Manhattan Bank
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
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank
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.
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, the Fund's total return, based on net
asset value per share, was 41.58% compared to 22.13% for the IFC Total Return
Index for Brazil (the "IFC Index"). For the period from inception on June 4,
1991 through June 30, 1996, the Fund's total return based on net asset value per
share was 233.58% compared to 242.51% for the IFC Index.
The Fund's positive results were due to an overweighting in the
telecommunications, retail, and beverage sectors, and an underweighting in the
electric generation and mining sectors. The overall market performance was
driven by a pan-Latin American market rally, falling domestic interest rates,
and enthusiasm over the successful privatization of Rio-based electric
distributor Light.
DO POLITICS MATTER?
An interesting development occurred in the market during the second quarter of
1996. In spite of an absence of tangible political progress on the economic
reform front, the stock market had a robust performance. What we have seen, and
we expect to continue to see unfolding for the remainder of the year, is an
increased emphasis on company fundamentals and economic variables and a
decreased emphasis on the political process. This is not to say that the
political process is unimportant nor that it is incapable of delivering either
positive or negative surprises, but rather as a stock market factor it has
receded in importance. We view this process as a healthy sign of the
"maturation" of the market and a symptom of Brazil's emergence as a relatively
stable economy and marketplace. The Real Plan now has two years under its belt,
inflation is benign if not yet slayed, the trade accounts are balanced, and
interest rates are continuing to fall. In short, the Brazilian turnaround is
becoming increasingly entrenched, and the financial markets are recognizing this
relative stability.
Nevertheless, there remains much work to be done, to be sure. The fiscal
accounts are still in deficit at the operational level (though improving), the
state's finances are still problematic, the social security system will soon be
bankrupt, tax levels are too high, and so on. The important thing, though, is
that the government has proven itself to be adept at managing the components of
the economy over which it has direct control, even while showing itself to be
somewhat less adept at quickly maneuvering legislation through congress. The
areas that we are particularly encouraged by are those sectors in which the
government owns the monopolies -- i.e. oil and gas, mining, telecommunications,
and electric generation. In each of these extremely important sectors, the
government will either liberalize or privatize the state-run companies that
currently exist. These sectors -- together with ports and railroads, which will
likewise be privatized or liberalized--form the backbone of economic development
and in Brazil's case will help propel the dramatic economic restructuring and
growth unfolding before our eyes. So even if congress slows down the reform
process to a snail's pace, we are increasingly of the opinion that the economy
can still grow at a reasonable pace. The executive branch is very clear on the
steps the country needs to take to grow going forward, and is moving in that
direction, with or without congress.
INDUSTRY REFORM
The important areas where we expect to see positive change are those mentioned
above -- telecommunications, electric generation, mining, oil and gas, ports,
and railroads. The telecommunications industry, through monopoly provider
Telebras and its operating subsidiaries, has witnessed a dramatic turnaround in
profitability due to tariff reform implemented by the government. Further, draft
legislation is circulating which will create a regulatory framework for the
sector as well as provide the basis for free competition in the cellular
telephone business. Eventually, we are increasingly of the opinion that the
government will privatize the entire sector, via Telebras.
Electric generation, while slightly more cumbersome to reorganize than
telecommunications, is likewise witnessing positive change. Profitability is
improving, if not robust, due to tariff reform. A regulatory framework is being
established, and steps are being taken to prepare pieces of the sector for
privatization. The timing of a dramatic restructuring of the industry, however,
will likely be more drawn out than with telecommunications. Mining, via state
monopoly Compania Vale do Rio Doce (CVRD), is being prepared for privatization
by the first half of 1997. Oil and gas, through the state monopoly Petrobras,
will not likely be privatized owing to nationalistic sentiments, but is
nevertheless undergoing a dramatic liberalization which will introduce
competition in certain segments and allow private participants to participate in
the sector. Lastly, both the railroads and ports are being privatized which
will, among other benefits, provide a boost to the economic competitiveness of
Brazilian exports.
STOCK MARKET
Our strategy of emphasizing those companies with protected niches or franchises
that are growing their earnings faster than their peers has served us well thus
far. We expect interest rates to find a bottom sometime in the second half of
the year, as the economy picks up
2
<PAGE>
steam and municipal election-related spending kicks into gear. Corporate
profits, while spotty so far in the private sector and strong in the
tariff-reform led public sector, should gather momentum in the latter part of
the year together with the economy. We expect inflation to continue benign, the
currency to move with inflation differentials, the trade accounts to remain
roughly in balance if slightly deteriorate as the economy picks up, and the
fiscal deficit to persist but improve. We are sticking to our bets, more or
less, that have worked so far, and are on the lookout for those companies which
will most benefit from a cyclical pick-up in economic activity. Taken together,
we are quite optimistic about the future growth prospects of Brazil and the
stock market.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
[SIGNATURE]
Andy Skov
PORTFOLIO MANAGER
July 22, 1996
3
<PAGE>
The Brazilian Investment Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
------------------------------------------------
NET ASSET VALUE (2) INDEX (1)(3)
----------------------- -----------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
----------------------- -----------------------
<S> <C> <C> <C> <C>
FISCAL YEAR TO DATE 41.58% -- 22.13% --
ONE YEAR 43.84 43.84% 22.37 22.37%
FIVE YEAR 241.23 27.82 247.10 28.26
SINCE INCEPTION* 233.58 26.78 242.51 27.38
</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: SIX MONTHS
1991* 1992 1993 1994 1995 ENDED 6/30/96 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 63.31 $ 55.28 $ 83.58 $ 129.97 $ 64.14 $ 50.25
Income Dividends - - - $ 1.80 - $ 0.02
Capital Gains Distributions - - $ 7.06 $ 6.65 $ 37.73 $ 30.75
Fund Total Return (2) 26.62% -12.68% 72.52% 68.32% -26.61% 41.58%
Index Total Return (1)(3)
** 3.48% 0.32% 99.45% 69.83% -20.24% 22.13%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share 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) The IFC Total Return Index for Brazil is an unmanaged index of common
stocks.
* The Fund commenced operations on June 4, 1991.
** Unaudited.
4
<PAGE>
The Brazilian Investment Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 95.7%
Short-Term Investments 4.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 4.7%
Banking 9.0%
Beverages 4.2%
Electrical & Electronics 0.9%
Energy Sources 4.6%
Food & Household Products 3.1%
Merchandising 18.9%
Telecommunications 27.8%
Textiles & Apparel 1.9%
Utilities - Electric & Gas 9.4%
Other 15.5%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Telebras 27.2%
2. Lojas Renner 18.9
3. Casa Anglo Brasileira 4.7
4. Banco Bradesco 4.7
5. Petrobras 4.6
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
6. Banco Itau 4.3%
7. Brahma 4.2
8. CPFL 3.6
9. Cemig 3.1
10. Pao de Acucar 2.5
---
77.8%
---
---
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------
- ------------
BRAZILIAN INVESTMENT FUND (90.2%)
- -------------------------------------------------------
- ------------
BRAZILIAN NON-VOTING PREFERRED STOCKS (86.3%)
(Unless otherwise noted)
- -------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (4.7%)
+Casa Anglo Brasileira 44,498,195 U.S.$2,438
-----------
- -------------------------------------------------------
- -------------
BANKING (9.0%)
Banco Bradesco 285,753,062 2,334
+**Banco Bradesco (Rights) 8,660,222 71
Banco Itau 5,378,500 2,186
**Banco Nacional 112,483,664 5
-----------
4,596
-----------
- -------------------------------------------------------
- -------------
BEVERAGES (4.2%)
Brahma 3,616,489 2,158
-----------
- -------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS
(0.9%)
Ericsson Telecom 31,900,000 478
-----------
- -------------------------------------------------------
- -------------
ENERGY SOURCES (4.6%)
Petrobras 19,176,000 2,359
-----------
- -------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (3.1%)
#Pao de Acucar GDR 77,515 1,284
Dixie Toga 297,458 287
-----------
1,571
-----------
- -------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.5%)
Schulz 15,018,000 262
-----------
- -------------------------------------------------------
- -------------
MACHINERY & ENGINEERING
(0.4%)
WEG 467,000 222
-----------
- -------------------------------------------------------
- -------------
MERCHANDISING (18.9%)
**Lojas Americanas 183,270 26
Lojas Renner 183,169,000 9,670
-----------
9,696
-----------
- -------------------------------------------------------
- -------------
METALS -- NON-FERROUS (0.9%)
CVRD 23 --
CVRD ADR 22,600 455
-----------
455
-----------
- -------------------------------------------------------
- -------------
TELECOMMUNICATIONS (27.8%)
Telebras 167,099,895 11,668
Telebras ADR 8,450 589
Telebras (Common) 29,153,000 1,713
Telesp 245,601 53
+Telesp (Common) 1,200,473 212
-----------
14,235
-----------
- -------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------
- -------------
TEXTILES & APPAREL (1.9%)
Coteminas 1,200,000 U.S.$ 473
+Wentex 188,000 476
-----------
949
-----------
- -------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS
(9.4%)
Cemig 39,289,000 1,045
Cemig ADR 16,600 471
+#Cemig ADR 3,357 90
+CESP 90 --
+CPFL 27,888,000 1,833
+Electricdade de Sao Paulo
(Common) 2,742,000 287
Eletrobras 'B' 4,118,000 1,107
Eletrobras ADR 250 4
-----------
4,837
-----------
- -------------------------------------------------------
- -------------
TOTAL BRAZILIAN NON-VOTING
PREFERRED STOCKS
(Cost U.S. $35,803) 44,256
-----------
- -------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (3.9%)
Brazilian Real (Cost U.S.
$1,983) BRL 1,990 1,982
-----------
- -------------------------------------------------------
- -------------
TOTAL BRAZILIAN INVESTMENT FUND
(Cost U.S. $37,786) 46,238
-----------
- -------------------------------------------------------
- -------------
TOTAL INVESTMENTS (90.2%)
(Cost U.S. $37,786) 46,238
-----------
- -------------------------------------------------------
- -------------
OTHER ASSETS (11.7%)
Cash U.S.$ 44
Receivable for Investment
Sold 5,678
Dividends Receivable 260
Other Assets 13 5,995
----------- -----------
- -------------------------------------------------------
- -------------
LIABILITIES (-1.9%)
Payable for:
Investments Purchased (833)
Investment Advisory Fees (34)
Professional Fees (23)
Shareholder Reporting
Expenses (20)
Directors' Fees and
Expenses (14)
Administrative and
Transfer Agent Fees (10)
Brazilian Administrative
and Custodian Fees (5)
U.S. Custodian Fees (1)
Other Liabilities (24) (964 )
----------- -----------
- -------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------
- ------------
<S> <C> <C>
NET ASSETS (100%)
Applicable to 1,020,310,
issued and outstanding
U.S. $0.01 par value
shares (50,000,000 shares
authorized) U.S.$51,269
-------------
- -------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 50.25
-------------
- -------------------------------------------------------
- -------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------
Common Stock U.S.$ 10
Capital Surplus 38,732
Undistributed Net Investment Income 671
Accumulated Net Realized
Gain 3,408
Unrealized Appreciation on
Investments and Foreign
Currency Translations 8,448
- -------------------------------------------------------
TOTAL NET ASSETS U.S.$51,269
-------------
</TABLE>
- ---------------------------------------------
- ---------
+ -- Non-income producing.
** -- Security valued at fair value -- see note A-1 to financial statements.
# -- 144A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
June 30, 1996 exchange rate--Brazilian Real (BRL) 1.00395 = U.S. $1.00
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends............................................... U.S.$1,249
Interest................................................ 4
Less: Foreign Taxes Withheld............................ (115)
- -------------------------------------------------------------------------------
Total Income.......................................... 1,138
- -------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................ 192
U.S. Administrative Fees and Transfer Agent Fees........ 60
Amortization of Organization Costs...................... 38
Brazilian Administrative and Custodian Fees............. 31
Audit Fees.............................................. 24
Directors' Fees and Expenses............................ 19
Legal Fees.............................................. 16
Shareholder Reporting Expenses.......................... 13
Custodian Fees.......................................... 2
Other Expenses.......................................... 51
- -------------------------------------------------------------------------------
Total Expenses........................................ 446
- -------------------------------------------------------------------------------
Net Investment Income............................... 692
- -------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................. 3,590
Foreign Currency Transactions........................... (8)
- -------------------------------------------------------------------------------
Net Realized Gain................................... 3,582
- -------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................. 10,713
Depreciation on Foreign Currency Translations........... --
- -------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation...... 10,713
- -------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 14,295
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... U.S.$14,987
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss).................. U.S.$ 692 U.S.$ (60)
Net Realized Gain............................. 3,582 17,440
Change in Unrealized Appreciation/Depreciation 10,713 (34,680)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations.................... 14,987 (17,300)
- -----------------------------------------------------------------------------------------
Distributions:
Net Investment Income......................... (21) --
Net Realized Gain............................. (17,583) (23,408)
- -----------------------------------------------------------------------------------------
Total Distributions........................... (17,604) (23,408)
- -----------------------------------------------------------------------------------------
Capital Share Transactions:
Subscription of Shares (35,440 and 25,702
shares, respectively)........................ 1,525 1,853
Reinvestment of Distributions (446,448 and
286,103 shares, respectively)................ 17,360 23,041
Repurchase of Shares (22,171 and 376,486
shares, respectively)........................ (953) (29,496)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting From Capital Share Transactions.... 17,932 (4,602)
- -----------------------------------------------------------------------------------------
Total Increase (Decrease)..................... 15,315 (45,310)
Net Assets:
Beginning of Period........................... 35,954 81,264
- -----------------------------------------------------------------------------------------
End of Period (including undistributed net
investment income of U.S. $671 and U.S. $0,
respectively.)............................... U.S.$51,269 U.S.$ 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> <C>
PERIOD FROM
SIX MONTHS JUNE 4, 1991*
ENDED YEAR ENDED DECEMBER 31, TO
SELECTED PER SHARE DATA AND JUNE 30, 1996 ------------------------------------------------------------- DECEMBER 31,
RATIOS: (UNAUDITED) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD.................. U.S.$ 64.14 U.S.$ 129.97 U.S.$ 83.58 U.S.$ 55.28 U.S.$ 63.31 U.S.$ 50.00
- ---------------------------------------------------------------------------------------------------------------------------
Offering Costs.............. -- -- -- -- -- (0.21)
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)..................... 0.68 (0.11) (0.71) 1.42 (0.09) 0.84
Net Realized and Unrealized
Gain (Loss) on
Investments................ 16.20 (27.99) 55.55 33.94 (7.94) 12.68
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............ 16.88 (28.10) 54.84 35.36 (8.03) 13.52
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income... (0.02) -- -- -- -- --
In Excess of Net
Investment Income..... -- -- (1.80) -- -- --
Net Realized Gain....... (30.75) (37.73) (6.65) (6.89) -- --
In Excess of Net
Realized Gain......... -- -- -- (0.17) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions..... (30.77) (37.73) (8.45) (7.06) -- --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD..................... U.S.$ 50.25 U.S.$ 64.14 U.S.$ 129.97 U.S.$ 83.58 U.S.$ 55.28 U.S.$ 63.31
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)..... 41.58% (26.61)% 68.32% 72.52% (12.68)% 26.62%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS)................ U.S.$ 51,269 U.S.$ 35,954 U.S.$ 81,264 U.S.$ 52,207 U.S.$ 46,687 U.S.$ 51,159
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................. 2.07%** 2.07% 1.82% 2.22% 2.27%(2) 2.00%**(2)
Ratio of Net Investment
Income (Loss) to Average
Net Assets................. 3.22%** (0.14)% (0.61)% 1.57% (0.07)% 3.49%**
Portfolio Turnover Rate..... 93% 112% 52% 40% 36% 1%
Average Commission Rate
(3)........................ U.S.$ 0.0000 N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of Operations.
**Annualized.
(1)Total investment return based on net asset value per share 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.
(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.
(3)Beginning with fiscal year 1996, the Fund is required to disclose the average
commission rate per share it paid for portfolio trades on which commissions
were charged during the period.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
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. 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.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and 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. In the event of default or
bankruptcy by the counter-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) from sales and maturities of forward foreign
currency exchange 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
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<PAGE>
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 EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables against changes in future foreign
exchange rates. A forward foreign currency exchange 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 call and put options on indices or
securities. The Fund may purchase call options to protect against an
increase in the price of the underlying index or security. The Fund may
purchase put options on indices or securities to protect against a decline
in the value of the underlying index or security. Possible losses from
purchased options cannot exceed the total amount invested. 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.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, net operating losses and of the timing of the recognition of
losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory
Agreement (the "Agreement"). Under the Agreement, the 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. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "U.S. Administrator"), provides administrative and shareholder
services to the Fund under an Administration Agreement. Under the Administration
Agreement, the U.S. 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 U.S. Administrator. The Chase Manhattan Bank, acts as custodian
for the Fund's assets held in the United States.
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 payable monthly at
an annual rate of .15% of the Fund's first $50 million of average weekly net
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 six months ended June 30, 1996, the Fund made purchases and sales
totaling $38,360,000 and $43,077,000, 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
June 30, 1996,
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<PAGE>
the U.S. Federal income tax cost basis of securities was $35,803,000 and
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $8,453,000, of which $11,159,000 related to appreciated securities and
$2,706,000 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. 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 six months ended June 30, 1996, the Fund repurchased the
following shares:
<TABLE>
<CAPTION>
U.S.
DATE SHARES (000)
- --------- --------- ---------
<S> <C> <C>
2/5/96 15,131 $ 653
5/6/96 7,040 $ 300
</TABLE>
On August 5, 1996, the Fund repurchased 2,000 shares totaling $104,000.
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 six months ended June 30, 1996, the Fund
issued 35,440 shares totaling $1,525,000.
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. The deferred fees payable, under the Plan, at June 30, 1996 totaled $3,000
and are included in Payable for Directors' Fees and Expenses on the Statement of
Net Assets.
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